I’m still seeing smart money selling into strength time and time again; a clear indication of distribution. 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'm turning very bearish right now (see my technical section below)....and I will utilize any bullishness on Monday to establish some longer term (2-4 month, Short positions *or Puts* as we would need to breech the relative near-tern highs for me to change my bias outlook....as such I'm looking to establish call positions and outright positions in the inverse leveraged funds....see a partial list below (we could also use a put-write strategy as well (example of a put-write play, we could write/sell the January 2010 SDS  $36 strike puts for $1.92 taking in $192.00 per contract, if they are pus to us at $36.00 we have a built in protective stop-loss of $1.92)....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 the resurgence of a very significant correction to take the bulls by the bulls in the days/weeks ahead and slap the bulls about...as the greenback is more oversold than at any time in history, way to many folks all leaning to the Short-side of the dollar market!!     See my in depth analysis below of various market conditions!

I had expected a shortened trading session of subdued proportions following the Thanksgiving holiday, but sellers moved briskly into position as they pressure stocks downward (especially the high-beta high P/E speculative names) amid news of credit troubles in Dubai. Their actions gave the stock market its worst single-session percentage drop of the month and caused volatility (VIX, VXN) to spike. Basically it was news that the Dubai government took charge of restructuring their corporate flagship, Dubai World, and asked creditors to defer payments of some $20 billion of debt due in the next 18 months that provided a profit taking catalyst. We saw that the selling pressure ebbed prior to the opening bell, stocks still started the session sharply lower...and this weakness reflected thru the European major indices that were trading during Thursday's (our holiday). I believe it was just a reminder to those who participated in the rally off of the March lows a reason to lock in gains from the market's 8+/- month rally. Amid the pressure, many global participants looked to establish positions in what is perceived as quality; so initially it favored the U.S. dollar (long-trade), which exacerbated weakness among stocks early on. However the greenback gave up more than half of its early gains to settle out the secession with a mere gain of just 0.3%.....the greenback's initial advance also pressured commodities, which had already been suffering from global selling pressure.

So as stocks sold off significantly on Friday as U.S. investors reacted to the global sell-off triggered by a debt crisis in Dubai, we saw that crude traded near a six-week low, gold dropped and the dollar soared as worried investors fled riskier assets and moved into safer havens. The stock market's sell-off began in Europe and continued in Asia on Friday after Dubai said they would delay debt repayments from its investment company, Dubai World. The decision raised broader questions about the safety of emerging-market debt and the strength of the global recovery.

A wave of selling swept across Asian markets and into our markets on Friday (a shortened post-holiday trading day called black-Friday for retailers), investors scrambled to piece together how much exposure regional lenders especially those in the Euro-land have to the financial troubles in Dubai.

Selling pressure accelerated in the afternoon session as future’s markets indicated a sharply lower opening. Investors were also spooked by broader fears that global financial markets have not healed properly since last year's crisis, and that the Dubai problem could expose these weaknesses in the overall markets. Dubai had stated late Wednesday night (great-timing due to the Holiday-trading environment) that they would seek a delay in debt repayments owed by Dubai World, a state-run conglomerate with about $60 billion in liabilities. The conglomerate has interests in real estate, ports and the leisure industry. Dubai said it would restructure Dubai World and announced a 6-month “standstill” on repayments of the state-run wide-ranging conglomerate's debt. Dubai's woes were a blow to market sentiment, serving as a reminder that potential trouble spots remain in the world economy and things are not what they always are hyped to be.

I don't see this as a massive contagion just yet but it's another warning for risk-hedged investors (remember these loose monetary conditions [and] loose lending have contributed to various asset bubblers). And, we still have various contagions out there [many even of a greater magnitude] and we could continue to see these kinds of nasty surprises.

Boy-o-Boy we will surely have a horde of economic data and geopolitical/financial news to move the markets this week as the credit-debacle in Dubai, the non-farm payrolls data, Black Friday/Cyber Monday and the manufacturing/service ISM reports will be released along with the Fed tan-book this coming week, and if that wasn’t bad enough we will have another clown show on capital hill where Congress will have the chance to throw poison darts at Fed chief B-52 Bernanke.

So from my vantage point the path of least resistance for our equity market is that of profit taking as the path is fraught with land mines (bouncing Betties) this week, and investors and fund managers with a host of pent up profits will surely want to bookem then gat cut off at the knees and risk losing their bonuses.

If Dubai's debt woes intensify and spread to other emerging markets it will quickly prompt a very quick withdrawal from riskier assets, and Friday's sell-off will likely carry through into this week until we reach some equilibrium.

Investors/traders will also have to speculate and contend with any so called surprises from a Senate Banking Committee hearing on the re- nomination of B-52 Ben Bernanke's to a second term (I think he should be fired (and jailed for theft of the American way of life). This hearing could provide some very ill tasting fodder for Wall Street at a time when the Fed is facing deep scrutiny in Congress for their massive bailout of large financial institutions (those deemed by them as to big to fail, the very same firms who’s deceitful and contemptuous actions caused the credit-debacle) during the credit crisis.

I’m sure that many a congressman will ask about the Fed’s latest banter where they stated that it could be 5-6 years before we return to normal growth. That’s according to Fed officials in the central bank’s latest economic forecast. They expect unemployment, now 10.2%, to remain in a range of 6.8 to 7.5% through 2012 (wishful thinking as I expect it to be in the range of 10.5-12.00%). “Business contacts reported that they would be cautious in their hiring and would continue to aggressively seek cost savings,” Fed officials said in their minutes.

Businesses would be able to meet any increases in demand in the near term by raising their employee’s currently depressed hours thus delaying the need to add to their payrolls. It sure doesn't look like the beginning of a normal, rapid recovery to this old economist. We’re in a form of mini-depression from my vantage point which typically happens after a prolonged period of nasty unchecked credit excesses that result in a bubble bursting and we get asset deflation. We have seen asset deflation, and we had a contraction in private-sector credit.

They also may ask about….the explosion in the Fed’s balance sheet as the Federal Reserve's balance sheet hit a new all time record of $2.23 Trillion in assets, after an $11 billion spike in MBS and Agency purchases this week over last week.  Securities held outright: $1,785 billion (an increase of $92 billion month/month, resulting from $2 billion in new Treasury purchases, which have tapered off at $776.5 billion, $79 billion increase in MBS and $12 billion in Agency Debt), or a $11 billion increase sequentially.  Net borrowings: $218 billion.

Friday's employment report for November will be the market moving event with job losses expected to decrease significantly from October (hell they ignore the household survey and only focus on the establishment survey so the headline pro forma numbers could beat expectations as the street is expecting a drop of only 125,000 jobs from last months 190,000 reading and the whisper number is at 105,000….I feel this is going to be a huge disappointment for the markets).

Investors will also get an early view of how retailers fared during Black Friday, as releases trickle in on Monday. Both the job market and consumer spending remain among the weakest links in the economic chain and could potentially stymie this so called burgeoning recovery.

Truck tonnage for September reflected in my opinion just how tepid and lackluster this so called recovery in the real economy is according to the ATA reports: The American Trucking Associations’ advance seasonally adjusted (SA) For-Hire Truck Tonnage Index decreased 0.2% in October, following a 0.3% contraction in September. The latest decline lowered the SA index to 103.6 (2000=100) from the revised 103.8 in September. The non-seasonally adjusted index, which represents the change in tonnage actually hauled by the fleets before any seasonal adjustment, equaled 109.6 in October, up 1.6 percent from September.  Compared with October 2008, SA tonnage dropped 5.2%, which was the best year-over-year showing since November 2008. In September, the index was down 7.3% from a year earlier. The economy is behaving with starts and stops. This is being reflected in truck tonnage, as well as most economic indicators. The industry should remain prepared for ups and downs in the months ahead, but the general trend should be modest improvement. Since consumer spending and manufacturing are not surging, trucking shouldn’t expect robust growth either. However, both retail sales and manufacturing output are exhibiting mild upward trend lines.

For investors, the past decade has been like watching pain dry as their investments are mostly underwater…but wall-street is cheering this 60-65% rally off the March bottom like it’s a monasteries bull-market!  They have been drinking spiked punch way too long…and right now most do not care as long as it looks like there might be a little punch left in the bowl for them to drink as well. The risk trades are again running rampant and the propriety trading desks are trying their best to suck in another herd-of bagholders, who have short-term memory losses!

Astute investors should read the FDIC’s Quarterly Banking Profile (see it below) and watch the departure of the chief financial officer of at least 1-3 major banking institution early next year, which will likely trigger a cascading negative affect over the financial sector….as we could see an all hell could break loose scenario. The number of banks on the FDIC's "problem list" rose 33% during the third quarter to 552, the highest level since 1993.

I still do not believe that the subprime mortgage crisis has passed and been dealt with (we have masked the problem with financial trickery and fuzzy math accounting.   The U.S. economy currently faces a very nasty coupling of significant weaker employment conditions with a mountain of resets on adjustable rate mortgages looming on the horizon. These loans, written at the height of the housing bubble, and they undoubtedly carry the highest loan-to-value ratios.

The assumption that the credit crisis is behind us is completely out of line with reality (from my vantage point, and all the intervention has yet to deal with the core issues)….the inevitability of profound credit losses here is still monstrous and unnervingly similar to the inevitability of profound losses following the dot-com bubble but on a magnitude of 10!

According to the Mortgage Bankers Association, nearly one in 10 homeowners with mortgages were at least one payment behind in the third quarter, up from about one in 14 mortgage holders in the third quarter of 2008. This number is the highest since the association began keeping records in 1972.

While the US recently reported 3.5% subsequently revised down to 2.8% growth in the third quarter, the talking butt-heads on the various bubblevision networks suggested that the most severe recession since the Great Depression is well over, and that the recovery is well underway (we’re in a new-bull-market according to the hypsters!

However as I have written about repeatedly that our economy is actually much weaker than the so called official pro forma data suggests. In fact, official measures of GDP may grossly overstate growth in the economy, as it really doesn’t reflect the fact that business sentiment especially among small firms is downright abysmal and their output has been steadily falling off a proverbial cliff. And if the GDP data was properly corrected for this segment, third-quarter GDP may have been closer to 1.25% rather than 2.8%.

The story of the U.S. is, indeed like that of the “tale of two cities” {It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us,……the period was so far like the present period,} well again the similarities are stark as we basically have two distinct economies. There is a less significant one that is slowly recovering (where wall-street and the financial sector flourishes) and a larger one that is still in a deep and persistent downturn (where most Americans reside).

Consider the following facts. While America's official unemployment rate is already 10.2%, the figure jumps to a whopping 17.5% when discouraged workers and partially employed workers are included. And, while the hyped data from firms suggest that job losses in the past 3-months were about 620,000 (the head-line establishment numbers) the household surveys point to a far different dismal number as it includes those folks self-employed (landscapers, real estate brokers and general labors) and small entrepreneurs (small business folks like me) as this number for the past 3-months comes in very hot at over two million people unemployed; but of course those on the various bubblevision networks do not cite this data as they are for the most part, part of the Wall-Street spin machine.

In October, the number of unemployed persons increased by 558,000 to 15.7 million. The overall unemployment rate rose by 0.4 percentage point to 10.2 percent, the highest rate since April 1983. Since the start of the recession in December 2007, the number of unemployed persons has risen by 8.2 million, and the unemployment rate has grown by 5.3 percentage points.

Moreover, the total effect on real income (the product of jobs times hours worked times average hourly wages) has been more severe than that implied by the job losses alone, because many firms (are taking the Chainsaw Al Dunlop approach to managing earnings and expenses) and they are cutting their worker’s hours, placing them on furlough or outright reducing their wages (especially benefits) as a way to push off costs and meet their earnings expectations.

Worse yet most if not all of the lost jobs (especially the good paying and benefited jobs) (in construction, finance, manufacturing and real tangible services are likely gone forever), and recent studies suggest that a 25-30% of U.S. jobs will be fully outsourced over time to other lower wage countries. Thus, a growing proportion of the work force (those Americans that were big discretionary spenders) are losing real hope of finding gainful decent employment, while the unemployment rate (especially for poor and unskilled workers, and those about the enter the work force {our children} will remain significantly high for a much longer period of time than in previous recessions…and this contagion will act like a cancer eating away at our economy in my opinion!

Consider also the still contracting credit markets (the life blood of growth) and even prime borrowers with good credit scores and investment-grade firms are experiencing deteriorating credit conditions, as the former use to have unfettered access to mortgages and consumer credit while the latter had access to bond and equity markets.

But non-prime borrowers (about 33% of U.S. households, now do not have nearly as much access to mortgages and credit card credit as they use to, (and many are tapped out). Far to many Americans are living from paycheck to paycheck, and its becoming a difficult endeavor for they to meet their obligations as real wages are deteriorating, owing to the decline in hourly wages and hours worked as seen in the labor department’s reports.

We must also reflect upon what is happening to private consumption and real-retail sales. Recent monthly figures suggest a rise in retail sales. But, because the official statistics capture mostly sales by larger retailers and exclude the fall by hundreds of thousands of smaller mom and pop stores and businesses that have failed or are failing and the pro forma look at consumption looks better than it really is. And, while higher-income and wealthier households have a buffer of savings to smooth out their consumption and avoid having to increase savings, most lower-income households must save more, as banks and other lenders cut back on home-equity loans and lower limits on available credit cards. It’s estimated that close to 40% of American households are just 3-paychecks away from bankruptcy, a dismal contagion!

Is this really a bullish development……One of the keys to the housing market turn-around is the success of the plethora of so called modification programs. The Treasury Department is expected to release a key measurement the success or failure of such programs next month and the overall number of permanent modifications for the Making Home Affordable program (another taxpayer-bailout). From the data I have reviewed I have seen that very few mortgages have been permanently modified so I can’t wait to see how the Treasury pro forma report turns out! Lenders have temporarily restructured on the surface hundreds of thousands of loans, but long-term changes have proved elusive (they have stretched out payments and back loaded principle etc.) as such this data is also raising the specter of a new wave of foreclosures (those that are not yet disclosed on balance statements).

The Treasury Department announced in October that, after a slow start last spring, its Making Home Affordable loan-modification initiative had resulted in about 500,000 trial modifications. The department said the $75-billion centerpiece of its anti-foreclosure efforts was on track to meet its goal of offering at least 5-years of lower payments to as many as 4 million stressed-out borrowers.  But even after reporting this month that trial modifications had topped 650,000, the government still hasn't said how many of those loans have been permanently restructured (a very miniscule number at best in my opinion). The Treasury Department stated that such numbers will be in next month's report on the program, which has been allocated $75 billion from the government's $700-billion Troubled Asset Relief Program taxpayer bailout fund. At this point, converting 40% of the trial modifications into long-term restructurings would be considered a major accomplishment. As of 9-01-2009 with more than 350,000 trial modifications begun, the program has only achieved a mere 1,711 permanent modifications (that’s right less than 2000).

Exactly what is holding up these so called conversions depends on whom you talk to…but the bottom line is that Wall-Street and the mega banks win again and main-street (average Americans) lose again; but we can not ignore the looming contagions due to non-modifications and likely subsequent foreclosures that will continue to escalate.

We also saw this week that Bankruptcy cases filed in federal courts for fiscal year 2009 totaled 1,402,816, up 34.5% over the 1,042,993 filings reported for the 12-month period ending September 30, 2008, according to statistics released today by the Administrative Office of the U.S. Courts. The federal Judiciary’s fiscal year is the 12-month period ending September 30,2009. The bankruptcies reported today are for October 1, 2008 through September 30, 2009. For the 12-month period ending September 30, 2009, business filings totaled 58,721, up 52 percent from the 38,651 business filings in the 12-month period ending September 30, 2008. Non-business filings totaled 1,344,095, up 34% from the 1,004,342 non-business bankruptcy filings in September 2008.

This is hardly bullish for housing or our economy…..I read an interesting Washington Post article on Thursday… Fannie Mae to tighten lending standards….Banks will demand higher credit scores, lower borrower debt….. Starting 12-12-2009, the automated system that Fannie Mae uses to approve loans will reject borrowers who have at least a 20% down payment but whose credit scores fall below 620 out of 850, previously, the cut-off was 580….also, for borrowers with a 20% down payment, no more than 45% of their gross monthly income can go toward paying debts (this will surely knock off many an applicant). Loans to people with credit scores below 620 have fallen seriously delinquent at a rate approximately 9-times higher than other loans purchased in the same period.

Fannie Mae, the giant mortgage finance company that helps shape lending guidelines, plans next month to raise minimum credit score requirements and limit the amount of overall debt that borrowers can carry relative to their incomes. The changes are the latest in a series of crackdowns by the mortgage industry and could surprise some prospective home buyers. The industry is starting to roll back loose lending standards that led to the mortgage meltdown and the subsequent economic crisis. But the fear is that if the industry becomes too restrictive, it will freeze out too many borrowers and impede an economic recovery.

Billionaire George Soros stated this week that he believes a “bloodletting” may be in the offing for leveraged buyout firms (LBOs) and commercial real estate investors amid the worst economy in seven decades. “In commercial real estate and leveraged buyouts, the bloodletting is yet to come,” Soros said. “These factors will continue to weigh on the American economy, and the American consumer will no longer be able to serve as the motor for the world economy.” Bankers across the globe have accounted for $1.66 trillion of write downs and write-offs on bad loans since the start of the credit crisis in 2007.  Moody’s Investors Service reports that the global speculative default rate will peak at 12.5% (I believe it peaks at 17.75%) this quarter as the U.S. and European economies continue to struggle. The rate rose to 12% in the third quarter, up from 2.8% just a year ago, Moody’s reports….that’s nearly a 10% in just a mere 12 months, and I do not see it abating soon. And as such given these facts, the so called global economic recovery is very likely to run out of steam very soon and that a “double-dip” recession may emerge early in 2011. The incessant double-digit unemployment rate is going to erode confidence like a cancer, and not just in the financial industry.

A contagion no one wants to speak about….. Banks’ main worries have centered on the toxic assets on their balance sheets during the past several years (other people’s debt that was given out with reckless abandon by bankers and financiers). Now they have to worry about their own debt, and it’s a massive contagion. About $10 trillion (yes trillion) of bank debt comes due by the end of 2015 (just 6-years from now), including a whopping $7 trillion due by 2012, according to Moody's Investors Service.

Most banks will have to refinance that debt at much higher interest rates (unless the B-52 Bernanke and the Treasury dude Geithner are able to artificially keep rates low) than were originally assessed on this debt. That’s because banks were able to borrow extremely cheaply during the credit bubble of 2003 to 2007 (and they better start to roll out of that debt now)…what’s important to remember is that we have seen taxpayer/government guarantees for bank debt during this financial crisis which has allowed banks to issue debt at historic low rates, but it is short-term debt which will soon become due again and again. The average maturity of new debt rated by Moody's dropped almost 60% since 2004 to a mere 3.1 years according to the reports that I have read.

Worse yet it’s not just a U.S. problem, as the average maturity for new bank debt worldwide fell almost 50% to 4.7 years during that period. “We thought that we should send a (warning) signal to the world” Jean-Francois Tremblay, a Moody's analyst, referring to a report the firm recently issued about the problem. I have been sounding this warning trumpet for many months now as despite the so called stabilization of the financial system over the past eight months (the relief rally from the march lows), banks still face tremendous internal contagions on their balance sheets.

Even after the stunning stock market losses people were suffering at this time last Thanksgiving and now we can reflect on the tremendous gains the market has bestowed since the March lows. Yet for those poor folks who closely watch the fate of their money that they put into 401(k)/IRAs the gains of the past 12 months have failed to provide much solace. As folks who blindly followed wall-streets advice and invested money at the start of this decade in the SPX still have 25% less of it, excluding dividends of course which have been evaporating an alarming rate!  Many Americans remain deeply worried about their money and have grown increasing mistrustful of Wall Street and the government leaders entrusted to watch over the financial systems.

This sentiment may weigh on the equity markets in the future: I believe that this rally is very fragile, and cash from individual investors and others is desperately needed to build on it (what I so often refer to as a new round of bagholders).  After two 50+ percent sell-offs in the stock market in less than a decade (Dot-Com bubble bursting and then the Credit-Debacle), a near miss with anther depression and an unrelenting unemployment rate that keeps crawling higher, folks do not feel safe at all to re-enter the shark infested investment-cesspool, so where is the next round of bagholders going to come from? 

Those on the various bubble-vision-networks want us to believe that in general investors should be acting like they are on the top of the world after this year's monster relief rally from the March lows. But as many Americans stand back and compare the stock market rally to that of the actual economy (the economy where they reside) an atmosphere of distrust as once again those on Wall Street reap the huge rewards (made with taxpayer and other people’s money) and the average American doesn't get anything of substance once again; as such there is I believe a growing sense of unfairness and bewilderment.

The reluctance to trust Wall Street and the stock market has shown up in overall investing behavior. To observe individual investors, I like to watch the flow of money in and out of mutual funds. During the market downturn between October 2007 and March, investors pulled about $215 billion out of U.S. stock funds, according to TrimTabs Investment Research. And early in the current rally, investors put about $30 billion back into the stock funds…a huge disproportion of funds. But since then, the money that went into the stock funds has been started to be withdrawn, and investors have preferred the relatively lower-risk bond funds, pouring in over $340 billion this year.

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.

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)