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 end of earnings-season and the start of the confessional period.

Strap-yourselves, as it is sure to be another wild another wild rollercoaster ride!!    The question is do you want a ticket to embark on this amusement ride...I expect volatility will be quite high and we will have many bouts of pops and drops...and a trader or investor that is not nimble or willing to correct with the market-flows and ebbs could lose a few fingers or become a proverbial bag-holder!     

Now after a second straight week of significant gains, the giddy locoweed induced bulls will need support from a bevy of retail players this week to hold their recent gains, they will need too see that key treasury auctions go off with out a hitch (the last few were plainly awful) and the ability of the bulls to discount the recent negative contagions from the Fed (raising their discount rate) has been remarkable. For this 4-day shortened trading week period the SPY (I like to watch this holder) is up 2.87% as the bulls press forth their 11-day rally. After another week of this ongoing Greek Tragedy the bulls came out on top, however we will see $7.0-billion worth of Greek sovereign debt will be auctioned off this week as well, which could spark weakness across-the-pond if its not meet with open arms. Additionally, investors and traders will be watching our (US) week's auction of nearly $126 billion in treasuries [The week ahead we see the following issuance of new $44-billion in 2-years on Tuesday, $42-billion 5-year motes on Wednesday and $32-billion in 7-year notes on Thursday along with $8-billion in the first 30-year TIPS offering since 2001.] and a historically wide yield curve as it persists for clues of market direction. Following the Fed's recent 0.25% discount rate increase a move which could offer investor’s either another reason to sell or renewed hope in the economy's recovery, these auctions will no doubt take on increased importance.  

B-52 Bernanke will also be on Capitol Hill for two days of testimony this week and he is not a very popular person and they will no doubt look to take a few pounds of this fed-head’s flesh this week….his testimony (or better put deception and falsehoods) is sure to hold Wall Street's attention following both the Fed's quicker-than-expected discount rate move and recent chatter of sooner rather than later exit strategies here and abroad all of which are adding uncertainty into the markets and most of their positions remain a mystery and as such for the bulls, their endgame will eventually come down to a determination whether investors/traders see the real positive fundamentals going forward being secure enough to maintain these valuations. So this week we will get a look into B-52 mans head as he testifies before the House Financial Services committee on Wednesday and the Senate Banking committee on Thursday (his semi annual testimony) interesting though he also speaks on Monday on the need for more stimulus (why would this be needed if the economy is so good and healing nicely? 

This past week Abby Joseph Cohen, the Goldman Sachs hypster known for calling the bull market in the 1990s (hell it ws nothing but another hyper-inflationary period that ended with another mega Greenspam bubble) said that the SPX 500 may rise to between 1,250 and 1,300, saying “the market overall is likely undervalued.” He new prediction calls for a rally of as much as 17% percent from Friday’s close (hell she hasn’t been right for many years now, but the bubblevision networks keep presenting her up as an expert!  

Its true stocks have retraced somewhat recently and the talking buttheads being pranced about on the various bubblevision networks hyping their own books are saying stocks are cheap, buy on this dip are just that doip-shits; as the SPX is still quite expensive in historical terms at these levels. As according to my data the current SPX 500 P/E ratio (based on trailing twelve month as-reported earnings) to be 26.00, more than 62% above the long-term 15.95average P/E ratio, calculated using Standard & Poor’s data produced quarterly, and after this earnings season the numbers could be worse. These are challenging times; and as such being a smart investor (not a bag-holder) is as important as ever.  

Berkshire Hathaway, Campbell Soup will be among the 61 firms in the SPX scheduled to release quarterly results this week. Earnings will continue at a brisk pace, with retail names headlining for the week; as a bevy of reports hit the tape starting on Monday. With home improvement giant Lowe's (LOW) Nordstrom (JWN) and Radio Shack (RSH) and we gat another Dow component Home Depot (HD) reports Tuesday morning. 

Right now the combined per-share earnings for the SPX are a paltry $17.43 based on fourth-quarter reports by the 423 firms already reporting earnings according to Bloomberg data, and the anal-heads are jumping for joy as this compares greatly they say when compared with a per-share loss of $0.09 in the year-ago period, according to Standard & Poor’s data (*I believe that these earnings are awful and future earnings guidance doesn’t support these lofty levels in my humble opinion) as per-share profit declined from the year-earlier figure in each of the past nine quarters, a record drop. 

The Wall-Street hypsters are incessantly shouting at the top of their lungs that technology stocks especially the NDX, SMH/SOX and Nasdog is the place to be…I just do not get it as from what I have seen from this recent round of pulled-ahead-earnings (the fourth-quarter 2009 earnings reports of technology firms), it was in the past a good time for leading technology firms as they deferred taxes, still slashed and burnt employees and were outsourcing heavily all of which added to the bottom profit lines (Oh I almost forgot the plunging greenback which enhanced their currency repatriation activities)…but heading forward it just isn't a good time to be a technology investor after the recent mega-rally which has created a disconnect between price and valuations.  

Technology stocks were the favorite sisters last year and the same numbskulls that missed the march bear-market relief rally now want you to back up the proverbial truck to buy technology firms as they believe that they will repeat last year's electrifying performance, (if you believe this hype I have a bridge for sale real cheap) as this often very volatile group hasn't yet to show any real investor attention so far this year. The largest technology focused ETF, (XLK), for example, was off 5% for the year as of Thursday (when I wrote this); after rallying 51% in 2009, a stellar feat….that in all likelihood can not be repeated as to do such would create a bubble greater than we saw in 1999-2000. The tech sector as a whole is highly sensitive to the economy, and its component stocks can surprise to the upside when businesses replace outmoded inventory, but most of these stocks have already priced in a replenishment cycle in my opinion.  

Entering Monday the markets are facing an 11-day rally of what can be best described as a very generous rally of 6.69% off the recent corrective lows, off of what I refer to as wave #1 down. The initial reversal for my folks was well prepared for and detailed within my past market reports and my various writings. I had expected at best the SPY to have an upside corrective wave #2 to 110.50-110.75 (February 03 highs) but this move extended even higher than I though possible (111.57 Friday’s highs) this euphoric move is very questionable in my opinion due to the very light volume and lack of real participation and failure of an actual follow-through days on increasing volume.

Worse yet in its own right, this wave #2 corrective rally has put the various indexes into firm overbought conditions, while the VIX is currently testing the key 20% psychological non-fear level while moving just about a near perfect 15% from its 10Dsma; this combination suggests to much complacency and its much more apparent now that the bulls have so little fear of a real nasty correction than at any time since the correction off the market's intermediate highs began in January; and that reactionary high as it (what I perceive to be an exhaustion top) came after a historic rally off of the March 2009 lows, as such I believe the bears and hedge fund-short sellers have a distinct advantage over bulls at this point in time.

I’m of course Monday-night quarterbacking Friday’s play as I was attending a funeral but it appears to me that the fed-heads announcement late Thursday evening where they raised the discount rate to .75% from .50% caused some severe initial reactions in the currency and futures markets. The Dow and ES futures dropped significantly Thursday night and this resulted in the markets taking a hit for a loss on the open on Friday's (someone made a killing on the OEX option play as near the close on Thursday as someone bought 350,000 late day puts for a $0.75 and sold them out at $2.75 Friday morning. As result of this action the Dollar rallied to new highs and the Euro and pound both were taken to the woodshed. The Fed action increasing the discount rate it charges for lending to troubled banks by 25 basis points was intended I believe to be a signal of the Fed’s inherent command to the markets that increasingly balking at the massive debt loads of our Treasury funding operations, but this so called signal is like a toothless attack dog which has a loud bark but no bite. As the Fed has virtually no room to tighten credit in a system where the real (inflation-adjusted) broad money supply is in severe contraction, and where general bank lending into the flow of commerce very inadequate and is so substandard it can not maintain even modest economic growth; but that’s a story for another day. 

Miraculously (the stock-market-fairy-godmothers would never let the markets tank after a fed-head action) the equity markets recovered very quickly after pro forma CPI reports hit the wires. The headline number on the CPI was a shocker for January as it increased by 0.2%; and now when seasonally adjusted the 12-month inflation rate is now at 2.7%...but the core rate actually dropped by 0.1% in January and the 12 month core rate is only 1.5% (this is nuts, but I will write more about this later). The report indicated that food prices have declined for the last 5-months (where do these numbskulls shop) while energy (costs related to food costs for shipping) have risen sharply since October with a 2.8% gain in January (February the numbers will be significantly higher). The drop in the core CPI by 0.1% was the first time the core rate has fallen since 1982 (a ridiculous pro forma release). There is still ample evidence that the deflation risk has not diminished at all, but the markets ignored this contagion at least on Friday. Consumer demand is so weak that retailers and service providers have virtually no pricing power; and they will be battling to retain market share in a declining economy and the only way to do that is with discounts. **In my opinion the Obama fuzzy math manipulators are taking a chapter from the Bush-folks as the January CPI report showed unusually large shifts in revised seasonal inflation patterns for 2009, with late-year inflation (a huge spike) being redistributed to earlier month; and the reason is self serving as it should positively affect GDP reporting (upping the most recent quarterly growth rates) while depressing the latter, but than again folks on fixed incomes tied into the CPI data have already been fleeced last year.  [The GDP revision due out on Friday are expected to be revised higher on changes to the inventory numbers…more pro form fuzzy math trickery. This is not real growth but more voodoo economics at work. The Chicago ISM on Friday is expected to decline. These are the activity numbers for February and by all accounts the economy may not be slipping but it is definitely not growing.] 

Apartment rents fell as did airline fares (yet REITs and airline stocks have been rallying of late go figure, this is a huge disconnect, one reason why we shorted airlines as with fares decreasing and energy costs soaring profit margins will get squeezed) the service CPI would have been much lower were it not for a huge pike in medical care rates (not great for consumers at all); and if it were not for the huge increase in energy prices at all levels we would be seeing some distinct deflationary numbers in the CPI; which is a huge double-edged sword; as when energy prices rise dramatically primarily gasoline and diesel prices as we head into the heart of the normal up-tick in driving miles, it strips away the amount of available discretionary cash left for consumers to spend as such retailers will be negatively impacted, and likely will make harder for our economy to pull out of this recession. The 26-30 million unemployed workers will also have a significant shortage of available cash for discretionary purchases; as this huge lack of spending power is not economy friendly, it’s preventing run away inflation but the ramifications are ugly and should keep the Fed on the sidelines for a while longer.

Friday's initial volatility was way over done because discount rate increase change only impacts those banks that are using the Fed's discount window for emergency overnight loans (very few are doing such right now as even fewer are making loans). Those types of loans peaked at $110 billion a day during the financial crisis and have fallen to an average of $14 billion this past week; as the banks that still have to borrow at the discount window have much bigger problems than a 25-basis point rate hike. The Fed tried to be extremely clear in their announcement that nothing else had changed. “The modifications are not expected to lead to tighter financial conditions for households and businesses and do not signal any change in the outlook for the economy or for monetary policy, which remains about as it was at the January meeting of the Federal Open Market Committee (FOMC). At that meeting, the Committee left its target range for the federal funds rate at 0 to 0.25% and said it anticipates that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period.” Clearly the Fed reemphasized their extended period clause.

 Commercial banks are currently sitting on $1.3 trillion in cash because they are very worried about another recessionary dip and they are worried about the growing commercial real estate loan contagions and ARM-rests as their lending activities are practically non existent. The pretend it’s not a contagion for the commercial real estate loans as the Alice in Wonderland story line has rune out of play as reality is setting in as about 50%-60% of commercial properties are now underwater and these lecherous banks need have decided they need to stockpile taxpayer bailout cash to protect themselves against future loan defaults and it puts them into a position to acquire other banks that were not so prudent. The FDIC this past week said there could be as many as 1,000 banks closed over the next 18-24 months and the healthy banks (and those to big to fail banks) are hoarding cash so they can make a bid when the FDIC calls them with an offer; as the easiest way for a bank to grow is by taking over the assets and customers of a failed bank in an FDIC auction (easy pickings).

Now that many fund managers (who failed to anticipate the recent drop are now back to breakeven for the year) I believe the stage is set for what I call a perfect bull-trap storm....as smart-money investors may just move to the side lines and many may park the money in short-term bonds as sort of a safe haven so they can position themselves to profit from what they perceive to be a market correction (they will be liquid enough to be able to buy selective quality stocks).

Normally a bull trap occurs when bulls take on new-bullish positions when an index or equity appears to be breaking out, (like we have seen on anemic volume) only to have the index/equity reverse and subsequently drop rapidly lower. This counter move produces a trap affect for the new-herd of giddy bulls and often leads to sharp sell offs….and this type of head-fake is often referred to as a Bull Trap…. Bull traps have a very basic setup. You will want a recent key-overhead resistance point to be broken out to the upside with preferably decent volume (anemic volume break-outs often spell more of a distinct reversal). The index/equity/asset will need to get back above resistance, then explode (gap-up or ramp-up) above this key-inflection point. The last component of the bull trap chart pattern is that the asset/index/stock should have seen some recent volatile swings as a wide range is critical, as it increases the odds that the asset/index/stock will have room to trend in order to book some decent profits.  Why do Bull Traps usually produce sharp and volatile sell offs, is the question that I have been asked in the past….its psychological as the first wave of selling will occur when the most recent relative low is breeched, due to the number of shorter term traders who have their stops slightly below the most recent relative low. The second wave of selling comes into play once the strong longs realize that this is something more that just a slight mediocre retracement, they hit their sell-buttons, book some near-term profits and get out of the way in effect depleting the necessary-buying demand that would be needed to hold the index/asset/equity up and this move normally has legs; and so often produces another wave of selling, which will often take out the near-term low in the counter move with heavy volume, leaving many a bull to be shocked with disbelief..

There is still a looming debt default contagion by Greece...and a number of other sovereign debt mega storm clouds on the horizon that have yet to be dealt with in any real manner! 

We have other potential major market contagion (bad bond auctions...we had a lousy 10-year auction and a terrible 30-year auction recently and the markets managed to totally ignored these contagions and to make matter worse we have a huge wave of issuance to hit the markets this week.

There are still looming geopolitical events. That would mean moving to dollar-assets instead of stocks or the once hot commodities. As I forecasted we have seen a very-decent commodity selling-event since early January and as I predicted the dollar has risen to new 6-month highs this past week; the rotational trade is underway and I don't think it is done yet as many firms could be seeing a way of redemptions in the days and weeks ahead!

We had a very small change in the McClellan Oscillator on Friday, as it dropped a mere 0.67-points despite the volatility which suggests a large price move is likely early this coming week.

During past decade a weekly (or better yet a monthly roll-over within the MACD from such overbought conditions has occurred infrequently and each time we have seen very powerful selling events!

In the past several months I’ve been accused of being a very pessimistic gloom and doomer. At times my prediction and forecasts have to many sounded exceptionally and overly pessimistic and sometime a few readers even asked what I had been smoking; of late many publishers of stock-market-timers chose not publish some of mt recent works, but that hasn’t been a problem for my subscribers; the calls were based on what I believe to be very sound and reasoned based on sound technicals (remember chart reading is very intense and its really all about sentiment and the ability to extrapolate from the charts true market intentions (greed/fear....bullishness or bearishness; as real investors vote with their wallets and chart reading interprets that vote from the herd!) we also have fundamentals that are extremely important as are economic indicators and it was out of these variables that my exhaustive-top call emerged and so far it is playing our as expected….but now some of this move is now behind us…its in the past now what is the market likely to do this week and nest....

I'm still bearish right non on a longer term basis (but on a near-term basis I'm of the belief that we could see an options X relief rally especially after a potential drop off please review the entire technical sections below) for the intermediate and longer-term periods...The near-term charts as well as the daily-charts are oversold, and a potential bounce is not out of the question.

After months and months of an artificial rally, where 80% of the gains in the indexes have come on 34 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 8^th to the 11^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.