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S & P - Ayn Rand Nailed This Over A Half Century Ago!

Sunday  6 December 2009

 It is simply amazing that a Russian-born woman had such insight into
the shift of a free capitalist society to what has devolved into a
government-run market.  This was back in 1957, when Atlas Shrugged
was published, panned by many critics, but very popular with the public. 
It remains one of the most popular books of the 20th Century.  One might
think Miss Rand wrote a letter to the editor just the other day:

When you see that trading is done, not by consent, but by
compulsion - when you see that in order to produce, you need to
obtain permission from men who produce nothing - when you see
money flowing to those who deal, not in goods, but in favors -
when you see that men get richer by graft and pull than by work,
and your laws don't protect you against them, but protect them
against you - when you see corruption being rewarded and
honesty becoming a self-sacrifice - you may know that your society
is doomed.

Ayn Rand
Atlas Shrugged, page 413

What does this have to do with the current market?  We have written
extensively on how the use of price and volume can give a fairly accurate
read of a market's direction and intent.  We have also written on how this
market has been Fed-sponsored, via Permanent Open Market Operations,
[POMO], and this has created a different kind of technical environment,
primarily due to the artificial stimulants of fiat currency being pumped into
the markets, politically motivated, to stem the tide and cover up the utterly
irresponsible decisions by Congress to allow big banks and institutions to
turn Wall Street into a casino.

Washington does not like being held accountable when it is payback time,
so the "Tweed-Ring" mentality is reborn.

The 60 minute chart of the day sessions depicts the yo-yo market of the
past three weeks, in closer detail.  The time delineation was inadvertently
cut-off at the bottom, so references will be made to the bars under
consideration.  The swing high on the left is blocked out, but one can see
that the close, [the 11th bar from the far left just under 1100], was positive,
and it appears that there should be upside continuation.  Instead, the
market gaps down and sells off, but it then quickly turns into a trading
range for the balance of the day.  The close, just under 1090, suggests
continuation to the downside, since the upside failed.  However, that is not
what occurred.

Price gapped up to create another swing high, [just under the "Min"
headline on the chart].  Another trading affair developed with price rallying
into the close.  Gapping down and selling off hard was not the first thought
that would come to mind after a three day rally, but a new, lower swing low
was created, and it become yet another intra day trading range with a
more positive close.

The next swing high, at 1117, turned out to be another failed probe as
price gained downside momentum, selling off sharply going into the close
and creating an Outside Key Reversal Day, [OKR].  Normally, this is a
strong market signal for a potential reversal that even a nascent technical
analyst can recognize.  We even went short the OKR of a clearly
weakened bull market. 

One can see the outcome as price ran up sharply after the jobs report
came out Friday morning. [Guess who creates those numbers?!]  This
announcement is in the midst of dwindling tax revenues for national, state,
and local governments.  Almost 25% of every mortgage in this country is
under water, and the foreclosure rate continues at record pace.  Jobs lost
are not recovered; people are under heavy credit card debt strain; prices
are going up on most everything, yet a "not as bad as expected" report
[which is STILL a negative],was sufficient enough the shoot a weak market
to a robust level, [at least for an hour]? 

It makes no sense, and that is what the market has been reflecting.  The
public has not supported this rally.  They are still recovering from the
2007 dramatic market fall. Large investing institutions and mutual funds
are not supporting this market, based on the net inflow/outflow of
redemptions and investments.  The difference can be traced, almost to
the dollar, to the funds earmarked by the Fed to be poured into the stock
markets over the last several months, [the POMO effect].

Demand has been relatively anemic, but supply selling is virtually absent. 
For clarity, there is selling going on in the markets all the time.  Supply
selling is a specific type of selling.  It is when sellers are strong enough to
overcome buyers, in an uptrend, and break support levels and turn the
trend, at least for a correction of some sort.  There has been no "normal"
correction, from a percentage stand point, since July, and hardly one from
March going into July.
 

S&P 60m 4 Dec 09
 
 The weekly chart shows how the market has been struggling throughout
November with a cluster of closings that show selling at the high of each
bar.  The similar closes tells us that demand is weak, unable to make
upside progress.  Yet, this past week managed to make a new weekly high
close for the move, on little demand.  It is difficult to make rational
assessments in an irrational environment.  It may well be that the market is
saying, "Despite stumbling along to new highs, no one is stopping the
effort, [which is true, no supply, AT ALL], and if no one will stop us, higher
we go!"

No one has deeper pockets than the Fed, with its fiat paper being printed
as fast as trees can be cut down.  Ayn Rand had a better handle on the
market over 50 years ago, in that one little quote, that makes more sense
than the total summation of all writings by Keynesian economists over the
same span of time, including Keynes himself.
 

S&P W 4 Dec09

The daily chart is the arbiter of disparity between the 60 minute and the
weekly chart.  It is almost like  the Three Stooges routine of "Who's On
First?!"

An OKR day on Thursday is followed by another OKR day on Friday. 
Count them.  Fifteen bars, 15 days of market activity at a high area that
shows no strength, but continues to crawl higher.  Friday's close was
higher than Thursday's, ostensibly erasing the negative impact of
Thursday's OKR day, but the close is under mid-range of the bar.  This
tells us that sellers were more in control than were buyers.  [Sellers, but not
supply selling].  Note the volume spike, the highest level of volume in over
a month, and sellers appear to have won the battle but have nothing to
show for it.

Of the 15 days, 6 closes were higher, and two others were very close. 
Market activity is showing no vote of confidence in this market.  At this
juncture, with failed highs and no important selling, one can only wait for
some clearer signs from which to make a decision.  [We are printing this
before the market opens on Sunday.]

Patience is required, for now. 

 

S&P D 4 Dec09