Its a Monday again therefore we should expect a bullish tone for the open (Merger/Monday or due to “news that is hyped) expect the futures player to orchestrate a huge gap-up….the questions is will it be a GAP-Run or GAP/Crap…..also its the beginning of a new-year and we should see some money inflows for a day or so, as historically the first few days of a new-year are historically bullish.....we will need to watch and possibly follow Asia's and Euro land's lead!       I would not be surprised if they  attempt to press a Gap/up and then a run...into the 10:45-11:00 inflection window and try to hold it there then pump it into the close; the markets could get a boost (on dollar weakness) or succumb to selling on dollar strength again, we will need to watch crude, the greenback and the Asian markets very closely....I am also watching the Russell-2000 for initial directional clues! 

I have been seeing smart money selling into strength time and time again; keeping a lid on the bullish trend, this is a clear indication of a classic market distribution process marking a significant top.   As such please take on LONG positions very carefully at these levels as the risk to being long at these levels is compounding every day especially in over-bought technology and consumer-cyclicals and retailers  Strap-yourselves, as it is sure to be another wild another wild rollercoaster ride!! The question is do you want a ticket to partake of this amusement ride     I believe we are close to another major inflection period for the markets, so please trade cautiously and be quick to protect profits.   Please remember folks there are usually 7-8 bullish (participants) to every 2+/- bearish traders/investors, so the propensity for bullishness is almost always stronger, as no one wants to be a party pooper, especially those funds that are playing with other people’s money as they attempt to pad their books into their fiscal-year end! However the reason that the market usually drops 4-5 times faster then it goes up is liquidity, when selling picks up is a contagion and the lack of buyers due to FEAR, can feed on itself very quickly like a plague or a quick acting cancer, as such markets plunge (normally) quicker than they go up!   

I was reflecting back on my days of youth when I was a fine upstanding lad this past weekend with some of my daughter’s friends, and I reflected back when I was a Alter boy, and a story came to mind that could be analogy for the markets!  In Sunday school I was taught the parable of the pharaoh of Egypt and his dream of seven fat cows being eaten by seven skinny cows. Deeply disturbed, the pharaoh sought the interpretation of his dream. A young slave boy interpreted the dream to mean Egypt would have seven years of plenty to be followed by seven years of famine. The message: Prepare for the lean years during the years of plenty. The pharaoh prepared Egypt for the lean years and led it into an era of prosperity. Joseph was actually answering the $64 million dollar question (inflation took over) as to how it was possible to have the good and bad at the same time; during the first seven years the second set of seven years of famine were already in existence at the time they were preparing for it by collecting and storing all the surplus grain and food. When the famine finally arrived, the first set of seven years was still at their side as they had stored all the food from that period; seems that the vast majority of Americans have forgotten the most simplistic of lessons….save from the years of plenty to mitigate the years of strife.

Wow, I know things are better than they were one year ago but are they so dramatically better with such little downside risk, that the bulls are all embarking on the proverbial train to the land of milk and honey! According to stock market newsletter writers the answer is a huge yes. As the level of Bears in this week’s Investors Intelligence reading fell to 15.6% from 16.7% last week and is now at the lowest level since April 1987 (a huge contrarian indicator). Back then the bulls were right as the markets rallied for another 6 months and then something significantly bad happened (for those not familiarly with what happened in October of 1987….and when we combine this sentiment reading with a VIX near historically low levels and this year will certainly be very interesting, especially with the very likely prospect of higher interest rates. 

Despite any holiday cheer the affluent are returning to mildly bearish territory, according to the December Spectrem Affluent Investor Confidence Index. The five-point decline in the index, which measures the investment confidence and outlook of households with $500,000 or more in invest-able assets, follows a five-point gain in November. Affluent investors said the most serious threats to achieving their financial goals are the political climate (22%), the economy (18%) and unemployment (12%); while more positive on the economy, rising concerns about the political climate are making wealthy Americans a little less optimistic heading into the New Year.  

Wall Street has once again started to tune and lube their spin-machines and they have formed through their tentacles into the media forums a fairly significant consensus that corporate earnings will spike considerably in 2010; and of course I believe that the problem for investors is that the markets in my opinion is already priced for perfection. The forecast of Wall Street analysts is that firms in the SPX will earn $77.54 a share next year, according to Thomson Financial, implying a gain of roughly 30-32% over the hyped pro forma earnings of 2009 which were far from real!  This is a "bottom-up" forecast, adding together the outlook of each equity analyst for the individual stock they cover; and as such its very important to note that such forecasts are almost always more optimistic than they should be! There are many reasons for their huge swells of optimism; as many believe that margins will increase if firms remain very slow to hire, as most of these economists expect (not very bullish for the markets in the employment market gets weaker). They are also of the belief that one-time federal tax breaks for corporations, worth about $30 billion (6x what average Americans have been given) will also help, but this is a one-time event. They are also counting on a weakening greenback and this will help the large cap firms in the SPX as these firms derive nearly half of their earnings overseas, where growth is expected to be stronger…and repatriation will be favorable. They also expect that so called cash-rich firms will start buying back stock again, boosting earnings per share simply by reducing the number of shares outstanding (not very demand driven growth).

Economic reports of real interest to be released this week (see full list below) include the ISM Index dropped 2 points in November to 53.6 but still in expansion territory; and as such another decline could be very problematic and indicate that the uptick during the past eight months peaked. The estimate is for a minor gain to 54.0 but there is no confidence in that number. This could be a leading indicator for the week. ISM services will be released on Wednesday. The FOMC minutes on Wednesday are the second most important economic event of the week. This will be the inside look at what the Fed was really thinking when they met in December. Since rate decisions are on everyone's mind this will be a closely watched event.

The biggie....this coming Friday we gat another pro forma look at the Non-Farm Payroll report for December and the consensus estimate is for a GAIN of  29,000 - 41,000 jobs (I do not get it but this is the general consensus). I don't have to tell you this would be a bubblevision headline event even if it is just a fuzzy-math blip in the data stream from some seasonal hiring. A positive number will draw a bevy of idiot politicians to voice their pleasure like moths to a flame taking credit for new-jobs-growth. Since even our fuzzy math manipulators in government office have been unable to conceal that the U-6 unemployment numbers are still increasing so I seriously doubt any pro forma positive number will be more than a one-month blip and we will back to job significant job losses in the February report…but this revelation will likely be subdued as they gloat at a positive headline number if it comes to pass. 

Please note: Anything is possible and this report will be a volatile market mover no matter which way it goes. We are also getting very close to the major benchmark revisions in the payroll report in February. We could see a revision of more than 750,000 jobs and that may not sit well with traders and investors espeially if they are job-losses

Very soon we will start to kick off 2009Q4 earnings (about two weeks) when Alcoa reports (January 11th). This will begin the Q4 earnings cycle but it really won't begin to flow in earnest until the week of the 18th (after options X) and doesn’t get real heavy until the week of the 25th and historically January normally gets off to a slow start because of the holidays…so will we get an earnings run, or a sell-into-earning. The key will be the real quality of earnings; rather than earnings from continued cost cutting…most analysts are expecting to see an significant uptick in earnings from increased revenue (I do not see this as yet); nevertheless this will be a huge sticking point for market-participants. I believe that revenue numbers will disappoint and if firms are still reporting cost savings rather than real-revenue enhancements then this earnings cycle could end very badly as expectations are so darn high. As I have stated I believe that the markets are priced to perfection and it will take some stellar results to keep the rally moving otherwise we could have a very rocky road ahead…its worth noting that those on bubblevision will no doubt be making year/year comparisons and shouting with glee at one another at the stellar beats as earnings in 2008Q4 were dismal so the easy year/year comparisons should produce a blowout quarter….but savvy traders and investors will not get caught up in the hype.  

Most money-managers and many hedge fund managers were done with the markets weeks ago as they locked in their bonuses and as such they had no reason to put new money on the line. Starting this week they will have to earn their 2010 bonus all over again. I am betting that they are not going to come back from their extended holidays and just hit the long-triggers on anything in sight so I’m betting that this is going to be a wait and see market-environment and I doubt it should take long to determine which way the markets want to go. I’m betting that institutional-money-handlers and fund traders are going to be looking for a significant dip, a very sizeable dip before committing new money; and with this parabolic relief rally very long in the tooth we are overdue for a decent correction; and it could be spurred by a buyer’s boycott rather than a sudden urge to raise cash; as many fund managers may be sitting on their hands.  I am also guessing that there is going to be a fair amount of tax selling now that the calendar has turned over to a new year. Whether that is in the first couple weeks before earnings or in the weeks following the earnings surge remains to be seen. One thing for sure, it will depend a lot on the banking sector.

As I wrote last week….in my opinion the SPX is currently significantly overvalued, as measured by the P/E ratio. Coming out of recessions, the P/E is historically very low, around 6-9, we never even encroached into these levels before the March rally was orchestrated and today using the widely accepted pro forma version of calculating P/E’s the current P/E is 20-23% higher than average sitting just below 23. This suggests that, unless earnings miraculously rocket forward (which is doubtful due to deteriorating demand, and the inability to slash and burn more employees at the same pace as they did in the mast 18-months) in order to catch up with historic valuations, the SPX is due for a nasty correction.

But that hasn’t stopped many analysts again (it’s the same song every year as they talk up their books and attempt to attract new monies) from predicting double-digit growth for 2010 and well into 2011. Wall Street so called guru’s the same folks that didn’t recognize the last two bubble and bear-markets that the SPX will rise to 1,295-1350, according to an average of 10 analyst’s predictions as compiled by Bloomberg. No firm has been more vocal about their bullish stance than Bank of America/Merrill Lynch. The firm is projecting another double-digit banner year for equities in 2010 and 2011 and sees many of the trends in place continuing for some time.

I’m more confused as to the rationality of the markets as the days go by, as we have seen a huge house of cards being erected during this rally where so many (estimated 90% of funds, and propriety-trading desks) have been the beneficiaries of this massive relief rally…so many winners and so few losers…what ever happened to producing real growth and wealth as assessing the value of a firms isn't an quick/easy practice; there are many variables involved, however we have historically seen that stock prices disconnect from real fundamentals and values significantly due to euphoric sentiment….their price moves (usually to the upside overshoot) the short-term price movements often appear to be very random and illogical (I call this the random irrational story-driven walk theory); however, over the long term, a firm is only worth the present value of the profits (it the current landscape way to many firms are lacking real profits) it will make. In the short term a company can survive without profits because of the expectations of future earnings and hyped growth expectation by Wall-Street story-tellers, but no firm can fool investors forever as eventually a firm's stock price will reflect the true value of the firm.

I believe unfortunately for the bulls that market is extremely overvalued by more than 55% as such I am looking for at least a 40-60% decline for the SPX in 2010. And as I have continued to warn my readers investors should be very, very careful about looking at (and trusting) these bonehead analyst’s and strategist’s hyped self-serving expectations for 2010 and 2011 earnings. Remember, most are directly tied into investment banks, mutual-funds and hedge-funds and most of the analysts and almost all the economists completely missed this credit/debt dislocation that sent the markets into a tailspin in 2008 and into 2009 (I call them the blind rats).

The coming months will provide the real-intrinsic signs of whether the global recovery is indeed in place (which I believe it is not), and if the U.S. consumer feels secure enough to open up their wallets and start buying like drunken sailors again which would elevate the economy. One thing is for certain: 2010 will provide intense volatility for investors and traders as uncertainties persist and mid-term elections are only 11-months away.

On the near term the indexes especially the Dow is very overextended but over the course of the next couple of weeks it could move up further as the volume is anemic, I think options expire this week will determine the markets direction into the end-of-the year; there is a decent probability that fund-managers chasing performance and those attempting to secure their gains could be the driving force for buying into year end. The 10,575-10,600 level to me should be a difficult wall to hurdle and the Dow 11,025 a huge brick wall (a mere 500+/- points from here), as we can not rule out a Santa rally and end-of-the year manipulated buying spree (hell those in charge are looking for bonuses they are not playing with their own money! I'm watching technicals already start to deteriorate, as this momentum rally is very tired. Now that the market is very stretched in valuations and price/volume divergences are growing, we will start to see the technicals break down 

 

However when I look at the weekly and monthly charts looking at out to say March/April, I sincerely believe that the various indexes sell off very hard I think we could see 1,700-2000 point drop on the Dow, 140-200 point purge on the SPX and 275-450 point drop on the Nasdog mainly because if you look at the technicals of the market right now to me, they appear to flashing major sell-signals and the fundamentals are deteriorating as well. The financials are weak, energy stocks are retreating, and the overall market breath and participation is quite weak, too weak for a sustained bull market. The bullish sentiment is way to bullish and euphoric at this point in time and if you look at the longer term picture of the market, where is the fuel and catalyst for a move up from here.

The various equity markets around the globe are still dancing to the same tune (the dollar-carry-trade, buy commodities tune) as the markets near their end-of-the year play….but many old time market pros like me are questioning how long that trade will last (I thought 2-weeks ago that the trade was starting to unravel) and whether the Dubai, Greece and Spain situations may ultimately be seen as a near-tem catalyst toward breaking the white-knuckle link between the deteriorating dollar and rising riskier assets classes, like stocks and commodities (hell the Fed has been the primary-player by keeping rates so low for so long that fixed income players (those needing safe havens have been forced to chase performance/yield as well, they can not enhance their incomes at 0.5-1.0% interest rates that many money markets are paying).

How many times will the American investor get burned, before they abandon the markets (usually they only got burned once every 20-30 years….this past decade they got burned twice very badly as they bought into the hype of buy and hold stocks for the long run, and now they are just where they started in back in September of 1998. Then they jumped on the commodity bandwagon and got their heads handed to them and once again many investors with memory loss issues are buying back into these very same markets, but strangely I’m seeing a massive herd led by fund managers running into what they perceive as a safe haven “bonds” another bubble inflating making it almost 3-massive bubbles in less than a decade “yields” in the municipal bond market have been depressed so far this year, as investors have “poured a record $55 billion” according to Bloomberg into muni bond funds, and many other investors are buying muni-bonds outright. These are the folks who state that they can’t live without some “yield” and also cannot imagine their city, county or state governments going bust; well I hate to tell you they may not go bust at first but yield when they approach default status will soar. 

Municipalities have borrowed more than they can repay, they have as I have written before massive pension liabilities that they cannot meet (up to $1.3 trillion dollars’ worth, according to Moody’s), and their tax receipts continue to plunge. The only reason that states haven’t defaulted yet is the benefits from the so-called “stimulus program,” which took money from savers, investors and taxpayers and transferred it to the impoverished the people who live in the various states that are approaching collapse like California. I believe that starting this year and going through 2017 the muni bond market will be embroiled in a huge wave of defaults.

The recent massive wave of pro forma optimism since the March lows has shown up in every financial market, and has fueled a retracement in muni bond yields to their lowest level since 1967 and narrowed the spread between muni bond yields and Treasuries; this will become unwound starting this year and next! What I find extremely strange is that this stampede to buy municipal bonds is occurring right on the start of a dramatic decline in their real values; once again the lemmings are loading up right at the peak so they can participate in the next major market debacle while the smart-money-investors are handing off the hot-potato to the next round of retail bagholders.

A Bullish surprise

Chicago PMI rises to 60.0 in December, should have been a bullish sign however for the most part investors ignored better than expected Chicago ISM numbers…. The big economic data out today was meet with a muted response as the Institute for Supply Management-Chicago index, (the Chicago PMI), rose from 56.1 in November to 60.0 in December; beating expectations for a rise to 55.0 (this report surprised me as well) as the reading at 60 is the best level since January 2006….this was a bullish report with nice gains in the new orders and the employment components. The report amazed me as it’s now at a 3-year high despite real deteriorating conditions; then again it’s a survey of business owners with self-serving agenda’s….this report was very hard for me to logically rationalize….Businesses in the Chicago region were expanding in December at their most rapid pace since January 2006….the business activity index rose to a higher-than-expected 60.0% from 56.1% in November; this is amazing as the index had fallen to as low as 31.4% just 12-months ago in January. The Chicago new orders index, rose a mere 0.7% to 63.5% in December from 62.8% in Novembers similarly, the inventories index rose to 39.4% from 34.9% (meaning more widgets on hand and not selling-through)….the production index jumped to a whopping 8.2 percentage points to 65.8% from 57.6%; while the employment index, to 51.2% from 41.9%, indicating some firms are hiring (not seen anywhere in any other data…is this a prelude to a pro forma jobs report to be released on 01/08/2010)…as strangely the employment index reached its highest level since just before the recession began in late 2007. Wednesday's data came as somewhat of a surprise as many investors/traders look for evidence of whether the economic recovery is real and/or strong enough to warrant the Fed to reverse their easy-money-path and start a series of inflation-fighting interest rate increases, and require other steps by the Fed-heads to lift their easy money policies.

In addition to offering a snapshot on current economic conditions, the business barometer is scrutinized because it closely correlates with the upcoming release of the nationwide ISM index on manufacturing activity, due out this coming week as the December ISM index is due for release Monday at 10:00est.

Follow the money...

TrimTabs CEO Charles Biderman said there were positive inflows into stock funds over the last five days of the year but that was normal for retirement funds. He said by far the biggest move for the year was money leaving stock funds for the safety of bonds. Despite the massive gains in the equity markets there was a constant flow of funds out of stocks and into bonds. He said there were record lows for stock buybacks, record lows for insider buying and record levels of new offerings. Over $1.1 trillion dollars of new offerings were absorbed by the markets and despite this they still moved higher. Most of the new offerings were secondary offerings by banks and financials and that was the worst performing sector for the year.

• Biderman also said take home pay for all U.S. taxpayers plunged 12% in 2009 to $5.8 trillion. The $800 billion drop came from layoffs, downsizing and pay cuts. At the same time the market value of all U.S. stocks rose $3.5 trillion or 12% to $16 trillion (wow a strange offset). He said the stimulus did nothing to restart economic growth compared to the $3 trillion that was taken out of home equities between 2003-2007.

• Competing with equities was the record sales of government debt of $2.1 trillion in 2009. That will rise to $2.5-2.6 trillion in 2010 and that continues to be a huge worry for economists and institutional investors. To date there have been no problems in the monthly treasury auctions but the worry is growing. The government was able to sell the $2.1 trillion in 2009 because it weighted the offerings heavily into the 3-6 month notes and 2-3 year treasuries, and the Fed was the back-stop through the utilization of primary-Dealers being the buyers of last resort in my opinion a very stealth maneuver.

Assets in money-market funds grew $22.18 billion in the latest week, as government-fund inflows jumped, while prime funds reported modest growth, according to iMoneyNet. Cash has been leaving money-market funds as investors sought higher returns--yields for the funds have been close to zero for months. But some economists are predicting a Federal Reserve interest-rate increase next year, which would be a welcome break for fund companies that have been waiving fees on their funds in order to keep investors. The seven-day yield on taxable money-market funds held steady at a record low 0.03%. The yield has been steadily declining in the wake of the Federal Open Market Committee's decision to keep the target federal funds rate near zero, which it affirmed earlier this month. For the week ended Tuesday, total assets in money-market funds rose to $3.261 trillion. Overall, taxable funds increased $24.05 billion to $2.861 trillion as institutional investors put in $25.43 billion and individual investors withdrew $1.38 billion. Prime funds, which invest in securities such as commercial paper, saw assets jump $3.76 billion. Government funds had $20.29 billion in inflows, according to iMoneyNet. Tax-free funds posted outflows of $1.87 billion, as yields at seven-day funds rose to 0.05% from 0.04% and 30-day fund yields held steady at 0.04%

Emerging-market equity funds inflows tripled this past week as the sentiment and investor outlook improved for developing-nation exporters. The funds attracted $1.7 billion in the week ended 12/23/09 from $571.4 million in the previous week, EPFR said in their release. That adds to a record $80.3 billion of investments in developing-nation stock funds so far this year, compared with outflows of $48 billion in the same period in 2008, the report indicated (a bubble in the making in my opinion).

The MSCI Emerging Markets Index has rallied a whopping 73% this year, and is set for its best annual performance ever. Developing nations were 9 of the 10 best-performing markets as massive stimulus measures from China to Brazil helped bolster a “pro forma recovery” in economic growth (It’s a false recovery in my opinion orchestrated by massive stimulus infusions from reckless governments not willing to let the economic cycle mature and play-out….I call it the Field of dreams scenario, build it/ produce it and they will buy it….its a ridiculous and illogical play!). This year’s inflows are way off the logical spectrum and as such there will be some vulnerability in the first part of the year (I’m looking for a significant 38-50% retracement), given that these very overvalued emerging market indices have performed so strongly.

Hot money (in CRAP stocks, indexes and markets) tends to attract flies….(Remember Markets Can Remain Illogical Far Longer Than You or I Can Remain Solvent with out exercising proper money management). So we could see lemming and herd investors add more money into emerging-market funds in 2010 as they look for ridiculously hyped earnings per share growth of between 35% and 60%. Funds investing in China took in $153 million this past week while those that focus on all the so-called BRIC nations of Brazil, Russia, India and China received $451 million, according to the release.

Flows into global emerging-market equity funds surged as the outlook for exporters in developing countries improved with “better data” (even-though it was manipulated and stretched) as it reflected positively on the U.S. economy and as the Federal Reserve kept interest rates on hold. Spending by U.S. consumers increased in albeit at an anemic rate in November, the sixth time in seven months. The Federal Reserve reiterated their pledge to their favorite lecherous sons/daughters to keep interest rates “exceptionally low” for an “extended period” and said they stated that economy is strengthening (I failed to see the data to support this contention, except on a pro forma fuzzy-math manipulated basis).Nevertheless the report showed that U.S. stock funds took in $11.1 billion last week, the most since June 2008, according to EPFR.

I'm still bearish right now (please review the entire technical sections below)....but between here and options-X  and the start of the New-Year it could be dicey as fund managers chase performance and fight to maintain their gains to secure their bonuses...I will utilize any bullishness this week to establish some longer term (3-7 month, SHORT positions *or PUTS* as the technical and fundamental landscape is riddled with killer-mines ....as such I'm also looking to establish call positions and outright positions in the inverse leveraged profunds and 3x-funds....see a partial list below (For those with a limited tolerance for risk, we could also use a put-write strategy as well....I'm also looking to SHORT a host of high-beta high P/E stocks as well (like  AAPL, AMZN, PCLN)   In a nut shell I'm looking for a nasty corrective wave to swamp the bulls in the days/weeks ahead and slap them about..

I have repeatedly shared with you all some of my favorite technical indicators and how to interpret them. All of them are still suggesting that the various stock markets would trend lower in the very near-future and the odds favor a significant correction; to reiterate we have seen that the Bollinger Bands are tightening, indicating a big move is on the way. The charts of the major indexes are displaying with near-completion nasty bearish rising-wedge patterns; along with that the Volatility Index (VIX) option prices are skewed to the upside, suggesting the VIX is going to move significantly higher in the days/weeks ahead (one reason why I suggested buying calls on the VIX). And the Bullish Percent Indexes for most market sectors are overbought and beginning to turn lower.

How has your 401ks (or are they now 201ks) and IRA account been doing for the past 10-years, the market performance has sucked.....Not a very great 10-year period

• Dow                  closed at 11,502 in 1999, well off  Thursday’s close of 10,428….(off by 1,074-points)

• Transports      closed at   2,977 in 1999, a winner as Thursday’s close of  4,099 (up by 1,121-points)

• Nasdog             closed at   4,186 in 1999, well off  Thursday’s close of   2,269….(off by 1,917-points)

• NDX                  closed at   3,756 in 1999, well off  Thursday’s close of   1,860….(off by 1,898-points)

• SPX                   closed at   1,469 in 1999, well off  Thursday’s close of   1,115….(off by    354-points)

• Russell-2000  closed at      505 in 1999  a winner as Thursday’s close of  625…(up by     120-points)

• SOX                  closed at      704 in 1999, well off  Thursday’s close of      360….(off by    345-points)

A seasonal uptick due to the holidays, or is this the vastly-talked about start to a full blown bullish recovery as touted on the various bubblevision networks….according to the data from the American Trucking Association: Truck Tonnage Index Jumped 2.7% In November   The American Trucking Associations’ advance seasonally adjusted (SA) For-Hire Truck Tonnage Index increased 2.7% in November, following a 0.2% contraction in October. The not seasonally adjusted index, which represents the change in tonnage actually hauled by the fleets before any seasonal adjustment, equaled 100.8 in November, down 8.0% from October.

It’s expected that November’s tonnage levels were pushed higher by improved economic activity, I believe it was purely seasonal as well as an inventory correction that is near completion. Truck freight levels have been hurt by both slow economic output and extremely bloated inventories; however, there is now evidence that the bloated inventories have been worked down are in much better shape, which will not be such a drag on truck freight volumes going forward, however this doesn’t equate to increased demand, as while the pro forma stimulus driven economy appears to have stabilized and trucking loads are slightly improving, the industry should not get overly excited about the sizeable increase in November. I continue to believe that both the economy and truck tonnage will exhibit retrenchments in the months ahead, and the general trend should be down into the end of the year….albeit as a mush slower moderate pace.

Trucking serves as a barometer of the U.S. economy, representing nearly 69% of tonnage carried by all modes of domestic freight transportation, including manufactured and retail goods. The economy fell off a cliff in September 2008, so the year-over-year comparisons are getting easier. Trucking benefited from the inventory correction, and I believe that is nearing completion and trucking will likely another retrenchment leg-down until there is a pickup in domestic end demand.
 

We have consistently seen these past weeks that the stock market has been on a consistent bullish run since it bounced off the lows in March 2009. As stocks (especially high-beta and crap-stocks that have been placed on the HTB-lists) keep hitting new highs for the year, driven by the prospects (hopes and prayers) of a so called vast and global economic recovery, and many value investors like me are more than concerned about these lofty valuations. The P/E ratio on the SPX, for example, has risen to its highest levels in many years (depending on the calculations 27, 39 and 56). In addition, many once highly sought after dividend stocks, which were once selling at very attractive valuations just a few months ago, are now very expensive.

Since this bear-market leg has started we have experienced 2-distinct and significant relief up-waves (wave 1 and 3 of a 5-wave pattern) and now we are embroiled in what I believe is the third (wave 5) and last wave up in this corrective pattern what I believe is a (B) wave up and I believe we are very close to finishing this up-wave!

According to my wave analysis the 1^st sub-wave of the (B) corrective wave up was (a) which lasted 68-69 trading days from 3/6/09 to 6/11/2009….thereafter the second wave (b) down lasted from approximately 6/11/209 to 7/8/2009 a mere 18-trading days….and this was a very shallow retracement….here is the tricky part if wave (c-up of the B up corrective wave) tops in the next 5-10 trading days (likely in and around my next inflection period (11/6 to 11/13, we have a weekend and a holiday Veterans day on the 11^thin the mix) it would mean that the (c) wave lasted approximately 68-up-days plus 18-down-days or 86+/- days now not all Elliot-wave patterns are exact-linear-counts but I would pay particular attention to the 11/9/2009 date as it would be 86-trading days from the 7/8/2009 bottom!      

Now for my bullish friends….I am issuing a serious red-flag-warning as if I’m correct and I believe that I am, when the up-leg of this (B) relief rally is completed…we will become embroiled in a very-nasty (many will be in the land-of denial) plunge, and this will be the third leg of this bear-market super-cycle-down-draft, and this plunge will catch many if not all of the perma-bulls in a state of shock and utter denial…I believe that history will be repeated and we will unfortunately plunge our economy into a deep and protracted recession (hopefully not another great-depression) 

VOLUME on the bullish side is worsening as the days wear on.....When I see decisive breaks below the bottom boundary lines of Rising Bearish Wedges for the Dow, SPX, and NDX I will be announcing that a major/major top is occurring. I’m also seeing increased bearish divergences between price and actual market breadth, price and volume, and price and momentum indicators that I follow for longer-term significant market moves. Please watch the weekly MACD indicators which are showing very distinct signs of respective topping patterns in the various indexed and are now starting to curl over which is a very bearish signal.  The concept behind MACD is fairly straightforward. Essentially, it calculates the difference between an instrument's 26-day and 12-day exponential moving averages (EMA). Of the two moving averages that make up MACD, the 12-day EMA is obviously the faster one, while the 26-day is slower one. In their calculation both moving averages use the closing prices of whatever period is measured, in the sector I watch for longer term moves (I use the weekly chart). On the MACD chart, a nine-day EMA of MACD itself is plotted as well, and it acts as a trigger for buy and sell decisions. MACD generates a bullish signal when it moves above its own nine-day EMA, and it sends a sell sign when it moves below its nine-day EMA