Remember never forget the power of greed and fear, and the propensity for investors wanting to own stocks (taking long-side) and fund managers chasing performance as we saw today especially if they think the bull-train is pulling away they will want to hop on board.  Please, remember when in doubt as to market conditions/direction CASH is always king (or queen depending on your gender J ) please trade cautiously and be quick to protect your profits. I’m guessing that this the days ahead we will become embroiled in a major bull-bear battle as we head into the thickets of earnings-season…it will not be pro forma earning that move the tape, it will be guidance or lack thereof!

Its a start to another week (Tuesday) Monday is a holiday again therefore we should expect a bullish tone for the open (Merger/Monday "Tuesday" 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….. 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 as speculative money is again finding its way into this sector!    I still have been seeing smart money selling into strength time and time again as my block selling indicators are increasing steadily as the weeks progress;  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!! especially during the onset of earnings!   The question is do you want a ticket to embark on this amusement ride.  Let’s face it…would it not be nearly impossible for 2009Q4 earnings not to improve year/year since in the earnings quarter of 2008-Q4 the SPX posted a $0.10 per share loss; and this was the first earnings loss ever for the SPX thanks to the mega losses by the greedy-over-leveraged lecherous banks and brokerage firms peddling crap that they ensured was AAA-rated to unsuspecting and unsophisticated investors, another manufactured Wall-Street Ponzi scheme wherein they end-mark is the taxpayer who bailed their sorry-asses out!  Earnings for this current cycle are expected to increase 39% to 45%.

After months and months of an artificial rally, where 80% of the gains in the indexes have come on 31 Mondays, of blatant upward manipulation the indexes now look poised to reverse.  I believe wholeheartedly that we have either already posted or we are about to post the third major top in the various indexes in this decade; and maybe it happened this past week or maybe we will start the mega-roll-over in the next several weeks as earnings season comes to a close or at my next major inflection turn date that is forecasted to fall in February 5^th to the 9^th from my vantage point the major key at this juncture is not to attempt to pick the proverbial so called exact top….this can be a foolish endeavor as the level of market manipulation is at historic highs as the Fed and treasury and major-lecherous banks/bankers who are a primary-responsible party to the major economic implosion of the housing-sector and debt-markets. This market top or what I’m calling an exhaustion-top that I’m forecasting/predicting will eventually lead to a very significant stock market decline (and it will act like a cancer, spreading to the global markets as well); and this reversal/drop could be far worse than the previous two major stock market declines we have experienced in the past decade according to many of the technicals and sentiment indicators that I utilize.

The first major decline started on January 14th, 2000, and bottomed October 9th, 2002, a nasty 38% plunge (thanks to the easy-money policies of the Fed headed by Greenspam and backed up by Bernanke). The second major top started on October 9th, 2007 and we saw a subsequent plunged to the March 2009 bottom an extremely nasty 54% plunge (again thanks to the illogical and reckless policies of the Fed to keep interest rates historically low for a very extended period of time started by Greenspam and carried forth by Bernanke). This next downward move which I believe will start very soon will in my opinion and could result in the most-nasty and demoralizing and devastating selling event we have experienced in my life-time and it could be a very-nasty-bear-market that could last several years.

We have huge Bearish Head & Shoulders tops forming in the various global stock-market indexes suggesting the most nasty plunge in this secular bear-market lies before and it will likely result in a world-wide calamity of the likes we have never seen before (hopefully it will not lead to another world-war). My longer term cycle work supports this premise and conclusion…my forecast is predicting a significant pull-back starting very soon, taking us down maybe 50-68% of the bear-market-relief rally, then a subsequent pole rally (manipulated by external forces) as we head into the mid-term election window….and if I’m right we will not make a new-relative high….the next plunge could start very late in 2010 but most likely it will start early in 2011 and last well into 2012/2013. The technicals are pointing toward a distinct probability of several mini-crashes between now and then (several huge volatility swings). The totality of this looming down-leg and subsequent stair-stepping down wave could wipe out 60-80% of the value of most stock market indices around the globe. Now please do not misinterpret my analysis….we are not going to fall off a cliff, as historically major market tops are slow in their development. As we have been seeing of late price move slowly into exhaustion tops on diminished volume and the subsequent roll slowly (as the top is formed) starts out slowly as well at least initially. Then as the various markets start to accelerate lower and break key-support levels…we will see that the stock market fairy-godmothers attempt to resuscitate the markets and they will be somewhat successful as they will bounce back a significant portion of the initial loss, then fall hard again.

This week the markets seemed to totally ignore the latest dismal economic news, as investors and traders like me who like to trade off what we perceive to be concrete fundamentals, were disappointed again, or was it a delayed reaction bleeding over into Friday’s selling. On Thursday we learned that Retail Sales dropped 0.3% in December, versus November 2009's figure. But as Paul Harvey was so fond of saying “Now for the rest of the story) for the past year in stealth revised announcements the Commerce reported that Retail Sales plunged 6.2% versus 2008 (wow and the markets rallied upward as did the retailer). This was the largest annual decline in revenues since government records were started back in 1992. The only other year which experienced a decline was 2008, down a mere 0.5%.

Now I have been repeatedly asking myself how can this retail sales data even remotely be construed to be concrete evidence of a recovering economy, and the conclusion has to be… it is not….as our over-leveraged consumption based economy based 70% on consumer spending is faltering in reality despite what is being promoted on the various bubblevision networks. Later we saw that business inventories rose 0.4% in November 2009; and of course they trumpeted this news by the bubblevision media as a great sign, as they concluded that businesses are significantly more optimistic…I was very perplexed as this flies in the face of reason as since when does more supply create more demand or lead to more profits as prices are forced to retreat. It’s still apparent to me that most American Consumers are still significantly way in over their proverbial heads in debt, and terrified about the prospects for future income and their jobs; and to me these Retail Sales numbers just reinforced my premise and conclusions. I’m wondering who will step up and buy these excessive inventories, maybe the government, hell they are printing money to facilitate the next mega bubble (bonds) and why not print a little extra. This is just a facilitated/manipulated move to prop up the past quarters GDP numbers in my opinion; as if businesses build inventories it will stimulate the GDP numbers (and of course the economy-right). Hell-no, what they failed to show was that a huge portion of those inventories were imports from China; so how does that spur future business investment and hiring in our country?

We also learned this week that 2009 foreclosures hit a record high, with estimates for 2010 to be over 3.4-4.0 million. The latest figures from RealtyTrac show that U.S. foreclosure filing rose by 21% last year. As bad as the 2009 numbers are, they probably would have been worse if not for legislative and industry-related stalling tactics and delays in processing delinquent loans by banks not wanting the contagions on their respective balance sheets.

James Saccacio, chief executive officer; stated that Foreclosures highest in July 2009 with more than 361,000 homes receiving notices.  After July, they saw that filings dropped drastically due to short-term factors like trial loan modifications, lengthy foreclosure process, and inventory clogging. “In the long term, a massive supply of delinquent loans continues to loom over the housing market. And many of those delinquencies will end up in the foreclosure processed this year,” said Soccacio.  

Foreclosures increased in the month of December by 14% and it's been a brutal year for foreclosure activity and there's no end in sight. I believe a conservative estimate is that about half of the properties that have been taken back are not currently on the market. They know if they are released on the market they will have a devastating effect on home prices, so there is a concerted effort to pad the real tally. 

A record 2.8 million households were threatened with foreclosure last year, and that number is expected to rise this year to as many as 3.8-4.0 million as more unemployed and cash-strapped homeowners fall significantly behind on their mortgages. The number of households that received a foreclosure-related notice rose 21.4% from 2008, according to RealtyTrac in their under-reported release on Thursday. One in every 45 households got at least one filing last year, a rate almost four times that of 2006.  

Stemming this sinking ship of foreclosures is an important step for the real estate market and the economy in general because foreclosures are usually sold at heavy discounted prices and they have the affect of lowering the value of surrounding properties.

U.S. retail sales…not unexpectedly for my subscribers as we forecasted the drop….fell in December from the previous month, signaling significant economic restraint by consumers during the holidays as the so called healed economy wrestles the reality with high unemployment.

• Retail sales declined a monthly 0.3% in December, the Commerce Department said Thursday.

• November sales, however, were adjusted upward, to a 1.8% monthly increase from a previously reported 1.3% gain.

Consistent with the strong November sales rise, a separate report indicated that business inventories rose by more than forecast that month, indicating that inventory-over-builds added to the economy's expansion in the past quarter of 2009 (too bad they are latent inventories). The net result for the two months (November and December) was weaker than expected but not by enough to alter the hyped Wall-Street-spin of a very healthy consumer, as the so-called experts were pranced about to dispel the very weak report.

Solid consumer spending is expected to have helped the economy expand in the final three months of 2009 for the second consecutive quarter. However, I have repeatedly warn that these pro forma numbers do not fully reflect a fading government stimulus and persistently high unemployment and a retrenching consumer should restrain consumer-spending significantly in 2010 and 2011.

Excluding the auto sector, all other retail sales in December dropped 0.2%, when the so called experts at predicting economic trends expected a 0.3-0.5% increase.

Why should be care about this weak retail-sales data….well retail sales data is an important indicator of consumer spending. Consumer spending makes up 70% of GDP, which is the broad measure of U.S. economic activity; and now Thursday's report suggests high joblessness is significantly restraining consumer-spending.

Without a more significant acceleration in consumption growth, the economic recovery is ultimately doomed to disappoint.

We saw that the markets ignored the growing contagion….we saw on Thursday that credit card defaults on store-branded accounts are at or near record levels during the holiday shopping season and the trend is likely to continue this year, according to Fitch Ratings analysts. The Fitch's report shows that more than one in every eight dollars of receivables was written off as uncollectible during the November collection period on an annualized basis (this is not a positive for regional or the too-big-to-fail banks balance-sheets or about to be reported earnings).

Fitch's Retail Credit Card Charge off Index in December snapped a two-month decline, rising 1.2 percent to 12.56% from the previous month. A new all-time high charge-off rate of 12.81% was set in August 2009. Throughout the year, retail charge-offs averaged 11.88%, more than 42% above the historical average of 8.24%.

“While results were negative throughout the year, we have seen the pace of deterioration moderate more recently," Fitch Managing Director Michael Dean said in a statement. Losses may be reduced by card issuers as they set stricter standards and become more selective in offering new accounts, Dean said (hum this will mean less credit available to those spenders to spend into a massive consumption based economy, hardly a positive).

Revolving credit usage decreased at an annual rate of 18.5% in November (**the largest dollar-value drop since 1968) again hardly a bullish development. As long as the employment and income growth remain significantly weak, demand for consumer credit especially retail credit will be limited.

We saw on Friday that a classic sell the news event knocked all the indexes into the loss column for the week. Intel may have knocked the cover off the ball but the chip sector was penalized for running up ahead of the report.

What is strange is the significant plethora of bullishness is present and this is surprising as with the equity markets generally up 67% off its lows (no one is displaying any fear or bearishness), we have a mere 23% bearish sentiment reading on the AAII survey a level not seen since over four-years ago; at the March lows, bearish sentiment on this survey was running at 70%; and now it is 23%; what a dramatic change (I’m always in the minority) as looking at the Investor Intelligence poll, we now see that the bearish sentiment is all the way down to 16% (the lowest level recorded since April 1987, before the crash). At the March lows the index showed that 47% of the investment newsletter editors were bearish….add into the mix that the Market Vane bullish sentiment reading is now at 57%, which is the highest level since November 2007; at the March lows, it posted a reading of 35%.

I’m guessing that for bullish traders Friday was not a pleasurable day as fund managers took advantage of the INTC & JPM earnings and option expiration volume to take profits in their vast-winning-positions as they in the cloak of options X unload some of their winners.  Over 9 billion shares traded on Friday with 7.3 million in down volume…clearly the bears were the winners, but thanks to some strange wild buy-programs the drop in overall price was mitigated; this was the heaviest volume day in many months.

On Friday we sold into the JPM earnings (as we did after hours with INTC) their earnings were distinctly problematic given they raised concerns over potential bank losses on weak consumer and commercial loans. The banking sector had been trending down for about two months since the October highs due to loan concerns and dilution issues and JPM showed that these concerns were warranted; what was very strange was that after the start to 2010 the sector exploded as it was apparent that new money came into the sector and the Banking sector rose almost 15% in a little over a week; now with JPM being the first big lecherous bank to report the pressure was on them to post strong earnings and provide great guidance; but it was not to be. The markets were subsequently roiled as JPM CEO Jamie Diamon issued a warning that he remained extremely cautious about 2010 considering the job and housing markets continued to be quite weak. “We don't have much visibility beyond the middle of this year and much will depend on how the economy behaves.” Wow what a difference a day makes as this is not what he said on Thursday…..He also said the economy was still too fragile to declare the worst was over, though he hoped conditions could stabilize by midyear.

The JPM results on Friday sent up some potential warning flags for next week because next week is bank week in the earnings parade. We get earnings from “C”, MS, WFC, BAC, GS, FITB, BBT and KEY. If JPM is taking such big hits from loan losses then what about the other banks this week. This expressed contagion sent the financial sector into a dive and it will probably take some good news from more than one of the big lecherous banks to reverse the trend which is down; and the subsequent reversal of that remarkable 15% rally in financials during the first week of January is likely going to weigh heavily on the SPX this week (As for banks the Citigroup earnings on Tuesday will probably be ignored. They are expected to do badly so any positive surprise could help. The two most critical financials will be the BAC earnings on Wednesday and GS on Thursday; Goldman is expected to beat significantly this player will set the tone thereafter!).  

Despite their importance the financials may be put on the back burner this week as IBM reports on Tuesday and is expected to produce very strong earnings and if they do it could revive the markets faith in technology stocks. Google report on Thursday and will be heavily watched. .

The International Energy Agency Friday slightly revised down its forecast for world oil demand and said the big overhang in unused crude, a buffer against higher prices, was likely to persist unless economic activity increases.  Oil consumption globally is expected to grow this year by 1.44 million barrels a day, down from 1.47 million barrels a day forecast in December, to 86.3 million barrels a day, the Paris-based agency said.

The latest forecast is more optimistic than the IEA's main peers, including the U.S. Energy Information Administration, which this week forecast world crude consumption to grow by 1.1 million barrels a day, down from an earlier projection.  "Without an economically linked demand response, seasonal draws [declines in oil inventory] may reverse once the thaw begins, leaving a still-healthy overhang in days of forward demand cover," the IEA said. Demand cover is a closely watched metric that gauges the amount of spare crude in terms of days of oil consumption.

OCC’s Quarterly Report on Bank Trading and Derivatives Activities, the banks are still at it

Executive Summary

• The notional value of derivatives held by U.S. commercial banks increased $804 billion in the third quarter, or 0.4%, to $204.3 trillion.

• U.S. commercial banks reported trading revenues of $5.7 billion trading cash and derivative instruments in the third quarter of 2009, up 11% from $5.2 billion in the second quarter.

• Net current credit exposure decreased 13% to $484 billion.

• Derivative contracts remain concentrated in interest rate products, which comprise 84% of total derivative notional values. The notional value of credit derivative contracts decreased by 3% during the quarter.

The OCC’s quarterly report on trading revenues and bank derivative activities is based on information provided by all insured U.S. commercial banks, trust companies, U.S. financial holding companies, as well as on other published financial data. A total of 1,065 insured U.S. commercial banks reported derivatives activities at the end of the third quarter,

A huge contagion and very negative release, of course it was vastly under-reported by the various bubblevision networks was that Fitch ratings said 9.2% of prime jumbo mortgage loans were delinquent in December; this is a huge number as its almost 300% higher than the 3.2% delinquency rate posted in December 2008.  Florida led the nation with a 16% delinquency rate followed by California at 10.8%. Fitch says more than 35% of prime jumbo borrowers that were still current on their loans are significantly underwater and owe more than their home is worth but are still making payments (the determining factor will be how much longer they will do so).

The Mortgage Bankers Association said they expect the number of mortgages written in 2010 will drop by a whopping 40% (as I have said these lecherous bankers (the too big to fail crap-heads….are well aware we are facing a potential bond-implosion and massive wave of inflation, and they do not want to lend at reduced rates when they expect rates to sky-rocket soon, and of course the Fed-will help them as they are bastard-brothers.

Originations in 2010 are expected to be around $1.28 trillion and well below the $2.11 trillion in 2009. If this comes true it will be the lowest volume since we saw the numbers of $1.14 trillion in 2000. The MBA is expecting mortgage rates to rise sharply when the Fed gets out of the mortgage market in February…this will likely not happen in my opinion until the elections are over, as it would be political suicide to have rates escalate into a massive wave of ARM-rate-resets, with high and increasing unemployment.

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..

The Daily VIX dropped and closed below its respective lower boundary by 2-standard deviations, below the Bollinger Band this past week “Monday” as the VIX dropped to 17.55. The bottom level of the Bollinger Band came in on Monday at 17.70; and as such coughed up a bearish-sell signal. As expected, the VIX rose back above the lower Bollinger Bands (it sits “inside” the envelop band now), generating a new sell signal in the VIX. I was asked this week by several loyal and dedicated subscribers are sell signals in the VIX reliable and/or significant enough to pay attention to them; as I have mentioned them rarely in the past? My response was a resounding….”Yes they are”. Sell signals from the Daily VIX are rare and the Weekly VIX even rarer. This sell signal does not mean stocks cannot rally another 2% to 4% before dropping hard. But it means there is a very good chance that prices will be substantially and significantly lower than they are now.

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) 

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