Robert McHugh: Stocks Staring Into the Abyss?

[CrackSmokeRepublican]

Worth a look... an Elliot Wave technician and one of the best... the Grand Supercycle actually extends back to 1694 when the Bank of England was founded... keep an eye open..  --CSR

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Stocks Staring Into the Abyss?
By: Robert McHugh | Sat, Nov 26, 2011


Europe's financial woes are serious. We believe the financial crisis will hit the fan starting in 2012 which will eventually lead to a political union of several major European nations, perhaps even a broader political union of western nations including Great Britain, the United States and Canada. It may be what results from developing global economic chaos. This is Grand Supercycle degree wave {IV} down underway from May 2nd, 2011, a dangerous Bear Market wave of long-term duration. Life will change by the time it finishes.

Germany's benchmark bond offering failed Wednesday, which is an alarming development for Europe and for contagion risk to the rest of the globe, as up until now Germany has been seen as the rock that fortifies and protects a complete European meltdown, with a quarter of the continent's GDP. Now we all know Germany has problems as well. Germany's Central Bank had to buy 39 percent of the 6 billion euros offering ($10.0 billion equivalency). In other words, Germany just printed $3.9 billion equivalency dollars out of thin air to pay its bills. Weimer Republic anyone? Not good.

So what is happening? We are entering Grand Supercycle degree wave {IV} down, the mother of all Bear Markets. In the past, we have seen Bear markets affect the solvency of corporations and individuals. Now we see a new Bear Market affecting the solvency of sovereign nations and continents. This Bear market is on a Grand scale the likes of which we have not seen in centuries. Here is a chart showing the big picture and how past Bear markets fit in with the scale of this developing one:



Dow 1902-2011

Above is a Big Picture Historical Elliott Wave Labeling for the Dow Industrials. It now appears that Grand Supercycle wave {III} up completed May 2nd, 2011 with a Megaphone Top Jaws of Death pattern. This is a major Bearish topping pattern. We cannot be completely sure that this Cycle Degree wave V up finished its Megaphone pattern because if the fifth wave (E) up finished on May 2nd, 2011, it means it truncated or failed to rise to the upper boundary. This leaves open the possibility that wave (E) up may have one more strong rally left in it to reach the upper boundary. There are no hard and fast rules. If the top is in on May 2nd, 2011, then the mother of all declines, Grand Supercycle degree wave {IV} down, has started, which will be so bad, it could be a coming Tribulation period of political and economic upheaval, war, pestilence, and natural disasters. Then a golden era, Grand Supercycle degree wave {V} up will follow. The Great Depression was of Supercycle degree, wave (IV) down, and was not of Grand Supercycle degree, like the coming Bear Market will be, which means this developing Bear Market, which is in its infancy, will be worse.

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"Jesus said to them, "I am the bread of life; he who comes to Me
shall not hunger, and he who believes in Me shall never thirst.
For I have come down from heaven,
For this is the will of My Father, that everyone who beholds
the Son and believes in Him, may have eternal life;
and I Myself will raise him up on the last day."

John 6: 35, 38, 40

 
Robert McHugh
Author: Robert McHugh

Robert D. McHugh, Jr. Ph.D.
Main Line Investors, Inc.

[CrackSmokeRepublican]

Keep an eye open even if one's life may be full of tears... it's all on the horizon... --CSR
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A Glimpse Into the Future of the Stock Market and Dollar

November 26, 2011     (Mobile version)


The "accident" many have been waiting for has finally happened, and it's called Europe. That doesn't bode well for the U.S. stock market.

A lot of technical analysts and financial pundits are expecting a standard-issue Santa Claus Rally once a "solution" to Europe's debt crisis magically appears. There will be no such magical solution for the simple reason the problems are intrinsic to the euro, the Eurozone's immense debts and the structure of the E.U. itself.

We can fruitfully start a speculative look into the future of the U.S. stock market and dollar with a quote from John Mauldin's book Endgame: The End of the Debt Supercycle and How It Changes Everything:

 

Economic theory tells us that it is precisely the fickle nature of confidence, including its dependence on the public's expectation of future events, which makes it so difficult to predict the timing of debt crises. High debt levels lead, in many mathematical economics models, to "multiple equilibria" in which the debt level might be sustained —or might not be.

    Economists do not have a terribly good idea of what kinds of events shift confidence and of how to concretely assess confidence vulnerability. What one does see, again and again, in the history of financial crises is that when an accident is waiting to happen, it eventually does. When countries become too deeply indebted, they are headed for trouble. When debt-fueled asset price explosions seem too good to be true, they probably are. But the exact timing can be very difficult to guess, and a crisis that seems imminent can sometimes take years to ignite.

The accident has finally happened, and it's called the euro/European debt crisis. I see a lot of analysts trying to torture a Bullish interpretation out of the charts, so let's take a "nothing fancy" chart of the broad-based S&P 500 with five basic TA tools: Bollinger Bands to measure volatility, relative strength (RSI), MACD (moving average convergence-divergence), stochastics and volume.



If we use Technical Analysis 101 (basic version), a number of things quickly pop out of this chart--and none of them are remotely bullish.

1. This market is not even close to being oversold. Bulls are hoping that the selloff has created an extreme of negative sentiment, which would be a reliable indicator that the market is about to rally. But there is no evidence of such an extreme, and the VIX/VXO (not shown) is also not at an extreme.

Rather than an extreme of negative sentiment, we see complacency, and a long way down to reach extremes in RSI and stochastics.

2. The 200-week moving average (MA) has offered picture-perfect resistance and support. The entire August-September period of wild swings of volatility can be seen here as a struggle around the 200-week MA.

In a classic retracement, the SPX shot up and recovered the 50-week MA, but failed to hold that level. Now it is heading back down for another retest of the 200-week MA. Only this time the chart is significantly weaker than in September, and the low-volume "oversold/hopium" rally in October was technically underwhelming.

3. Another clue that supports the notion that the 200-week MA will fail to hold this next text is the beautiful (to technicians) complex head-and-shoulders pattern which is made up of a shallow HS triple top formed from March to August of this year, and a second outer left shoulder formed in November of 2010.

The corresponding right shoulder was traced by the October rally that just rolled over. This completes a long-term head and shoulders topping pattern.

4. The MACD is extremely negative, being well below the neutral line and rolling over into a bearish cross. Coincidentally, the stochastics also rolled over in a bearish cross.

5. Price tends to alternate between the Bollinger bands; rallies will rise to the upper band and push it higher, while declines will fall to the lower band and ride it down. Thus the lower band is a reasonable initial target for this decline. The problem for Bulls is that this target is well below the 200-week MA, meaning that hitting the lower band will mean the 200-week MA will be decisively broken.

If price does fall to the lower band, we can anticipate an oversold rally back up to the 200-week MA, followed by a renewed plunge to new lows.

An insightful technical analyst who prefers to be known only as "Chartist Friend from Pittsburgh" shared two very long-term charts of the Dow Jones Industrial Average (DJIA) and the U.S. dollar. As I have noted here many times, the current era has seen the DJIA and the dollar on a see-saw, meaning a falling dollar has corresponded to a rising stock market, and voce versa.

These charts are remarkably self-explanatory:



The implications of this chart are not exactly Bullish, as it targets a long-term bottom between 1,000 and 600.

Turning to the U.S. dollar, our Chartist Friend observed, The monster decade long head & shoulders on the DJIA is well documented, but I have yet to see anyone other than myself make a connection between the DXY mid-90's bottom and the bottom that it is forming today."



Our Chartist Friend from Pittsburgh has noted how a classic 5-point pattern may be repeating, which targets the 86-88 level in the DXY near-term. Longer term, this chart suggests a rally of much greater duration and vigor than most analysts dare extrapolate in the current dollar-Bearish climate.

Thank you, Chartist Friend from Pittsburgh, for sharing these charts.

http://www.oftwominds.com/blognov11/fut ... 11-11.html

[CrackSmokeRepublican]

Click link to see all:

http://static.safehaven.com/authors/nou ... _large.png

2008 Vs 2011

I originally was looking at this analogue back in the beginning of August, as were other technicians, but after putting in a low, to the exact day on Oct 4th (point 12) as the previous fractal, I then projected a target for the rally, 1240SPX was the upside target I was expecting off the Oct 4the low.

Of course the market never exactly make it that simple, but the market is starting to still mirror the 2008 analogue, whilst I am never a big fan of these sorts of moves, you can't argue with the moves so far, it's a fair comparison to use and one that I think needs respecting.

If the market continues to follow this we still have some substantial declines left, which likely takes out the Oct 4th lows from the last swing high at 1292SPX.

SPX Paint By Numbers
Larger Image

The thin black line was the projection; I have simply added the fractal in the red line from the 1292SPX high.

The scary part about this chart is the rejection on point 13, that's not a good sign from a bullish perspective. I always thought the Oct4th lows would be tested again as the rally off that low was 3 waves which I have highlighted in prior articles.

http://www.safehaven.com/article/23422/ ... in-control

[CrackSmokeRepublican]

The Supercommittee of the One Percent Goes Down in Flames
November 26, 2011 deanbaker1 Leave a comment Go to comments

from Dean Baker

Congress gave us a wonderful Thanksgiving present when we got word that the supercommitee was hanging up its capes. While many in the media were pushing the story of a dysfunctional Congress that could not get anything done, the exact opposite was true. The supercommittee was about finding a backdoor way to cut Social Security and Medicare, and create enough cover that Congress could get away with it.

It is important to remember the basic facts about the budget and the economy. Contrary to the conventional wisdom in Washington, it is easy to show (by looking at the website of the Congressional Budget Office) that we do not have a chronic deficit problem. In 2007, prior to the collapse of the housing bubble and the resulting economic downturn, the deficit was just 1.2 percent of GDP.

The deficit was projected to remain near this level for the immediate future, even if the Bush tax cuts did not expire as scheduled in 2011. If the tax cuts were allowed to expire than the budget was projected to turn to surplus.

All this changed when the collapse of the housing bubble wrecked the economy. The story is simple, the housing bubble generated over $1 trillion in annual demand by stimulating record levels of construction and causing a home equity-driven consumption boom. This demand disappeared when the bubble burst. This is what created the large deficits that we are now seeing.

The trillion-dollar-plus deficits are replacing lost private sector demand. Those who want lower deficits now, want higher unemployment. They may not know this, but that is the reality since employers are not going to hire people because the government has cuts its spending or fires government employees. The world does not work that way.

While this is the reality, the supercommittee was about turning reality on its head. Instead of the problem being a Congress that is too corrupt and/or incompetent to rein in the sort of Wall Street excesses that wrecked the economy, we were told that the problem was a Congress that could not deal with the budget deficit.

To address this invented problem, the supercommittee created an end-run around the normal congressional process. This was a long held dream of the people financed by investment banker Peter Peterson. Their idea was that it would not be possible to make major cuts to Social Security and Medicare through the normal congressional process because these programs are too popular.

Both programs enjoy enormous support across the political spectrum. Even large majorities of self-identified conservatives and Republicans are opposed to cuts in Social Security and Medicare. For this reason, they have wanted to set up a special process that could insulate members of Congress from political pressure. The hope was that both parties would sign on to cuts in these programs, so that voters would have nowhere to go.

However this effort went down in flames this week. Much of the credit goes to the Occupy Wall Street (OWS) movement. OWS and the response it has drawn from around the country has hugely altered the political debate. It has put inequality and the incredible upward redistribution of income over the last three decades at the center of the national debate.  In this context, it became impossible for Congress to back a package that had cuts to Social Security and Medicare at its center, while actually lowering taxes for the richest 1 percent, as the Republican members of the supercommittee were demanding.    

Now that the supercommittee is dead, Congress must be forced to address the real crisis facing the country: the 26 million people who are unemployed, underemployed, or out of the labor force altogether. This would not be difficult if we had a functional Congress.

The teen unemployment rate is 25 percent, the unemployment rate for African American teens is 45 percent. A youth employment program putting people to work cleaning up parks and abandoned buildings could put many of these people to work. If we got adequate funding to state and local governments, they would not be paying off 30,000 workers a month.

We have a serious need for rebuilding our infrastructure. Major projects take time, but fortunately we have time. No projections show the economy recovering until at least 2016 or 2017. And, we can promote work sharing which would encourage employers to keep workers on the job instead of putting them on the unemployment rolls.

These are the sorts of things that Congress should be debating right now. As the financial markets keep telling us, the budget deficit is not a problem; otherwise the interest rate on 10-year Treasury bonds would not be 2.0 percent.

There is a long-term issue with the deficit, but as every budget analyst knows, this is a health care story. If the United States fixes its health care system, then the deficit will not be a major problem. If we don't, then our broken health care system will wreck the economy regardless of what we do with Medicare, Medicaid and other public sector health care programs.

So everyone should enjoy their Thanksgiving knowing that the huge supercommittee turkey is dead. If the 99 percent can keep up the pressue, Congress will return to reality after the holiday.

http://rwer.wordpress.com/2011/11/26/th ... #more-6744

[CrackSmokeRepublican]

Interesting show with Steve Keen (from Australia):

http://www.youtube.com/watch?&v=rGkmgnprrIU

[CrackSmokeRepublican]

More "stress" to the EU-system if you haven't seen it already... looks like the Financial Jew Scam Artists are going to attack France after Italy blows....then finally Germany.  


From Zero-Jew:

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Goldman: "As The Endgame Approaches, The Rally In AAA-Euro Area Sovereign Bonds No Longer Seems Sustainable"  

Submitted by Tyler Moshe on 11/27/2011    

Goldman Sachs has for the time being been very quiet in joining all of its colleagues from around the street in screaming for an immediate intervention by the ECB or else. The reasons are glaringly obvious: with a Goldman alum in charge of the ECB, and a 23 year Goldman veteran acting as ambassador to Germany, whatever Goldman wants, Goldman will get, without the need for convincing pitchbooks and dramatic expostulations that the world is ending unless... Intuitively it makes sense for Goldman to wait: after all why not take advantage of the situation a la Bear and Lehman, and wait for 3-4 major European banks to collapse, which will be the green light for Goldman to do what it does best: step in and fill the financial and power vacuum. Needless to say, when UniCredit, Commerzbank or Raiffeisen are down, the ECB will have no choice but to intervene with or without the Fed's help. Which is why anyone looking for clues as to what will happen in Europe has to focus on Goldman alone as we already know too well how everyone else is axed. Luckily GS' Francesco Garzarelli and Huw Pill have just released a much overdue note presenting just how the firm feel ont he topic of Europe's continuation as a going concern, or, alternatively, collapse. While we present the full note below in its entirety which naturally seeks to avoid broad panic, here are some notable extracts from a nuanced read: "considering how much damage to confidence has now been inflicted, one must also entertain the possibility that the intensification of market tensions and/or deterioration of economic activity reinforce each other feeding domestic political and social pressures precluding a final agreement among EMU member states from being reached. In this case, rather than being the 'forcing mechanism' that drives agreement, the economic and financial environment could feedback into the political process in a negative way, leading to a vicious downward spiral and, ultimately, to the failure of the Euro project." Simply said "an alternative scenario of a 'break-up' of the Euro area certainly cannot be ruled out", which leads to Goldman's conclusion: "For the same set of reasons, as the 'end game' approaches the rally in AAA-rated Euro area sovereign bonds (Germany's especially) no longer seems sustainable and could reverse in coming weeks. In our base case of more intrusive control on future deficit financing, the core countries will, in exchange, have to shoulder a greater part of the legacy credit risk of their peers if they want to keep EMU alive. In a 'break-up' scenario, the creditor 'core' countries will be confronted with a wave of insolvencies, which would also worsen their fiscal position. And in the middle ground between these two outcomes, where we currently stand, the ECB will be intermediating growing intra-Eurosystem imbalances. Through this monetary channel at the heart of EMU, the 'shadow' credit risk of the core countries is already rising, and at an increasingly rapid pace." As expected, it appears that Goldman sure will like occupying those European bank HQs for about $1 in equity.

http://www.zerohedge.com/news/goldman-e ... ustainable


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Bank of France's Noyer Speaks, Says Europe Is In A "True Financial Crisis"

Tyler Durden's picture
Submitted by Tyler Durden on 11/27/2011 19:36 -0500

In case anyone was wondering why the EURUSD is back to levels from several hours ago and well off the ramp highs (with ES continuing to pretend nothing matters), it is due to Bank of France Governor Christian Noyer who speak the following bullet points at a forum in Tokyo:

    Crisis Has Worsened Significantly
    Market stress has intensified and Europe is in a "true financial crisis,"

In other words precisely what Zero Hedge readers have known all along, the same as this article from the FT which shows what we presented to readers last week. As for those who like listening to the French grovel here is you desert:

    Markets and some governments think the ECB should buy more govt debt

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Uncle Sam To The Rescue After All: Latest Rumor Sees €600 Billion Bailout Of Italy From US, Pardon IMF

Submitted by Tyler Durden on 11/27/2011

The European desperation is palpable ahead of the EURUSD open in a few hours, which has to deal with the aftermath of the Friday afternoon downgrade of Belgium, the junking of Portugal and Hungary, and the prospect of an imminent downgrade of AAA-stalwarts Austria and France. So what does Europe do instead of actually proposing the inevitable debt repudiation that is the only and final outcome? Why more rumors of course. To wit: last night saw the preannouncement of Welt am Sonntag indicating that in order to bypass the lengthy process of treaty changes, Europe would instead proceed with bilateral agreements that would somehow enforce fiscal stability and convince the market that European states would follow the German leader. Well since that is sure to have absolutely no impact, overnight Italian La Stampa is out with a fresh new rumor which cites "IMF sources" according to which the US-headquartered and funded organization would provide a €600 billion loan to Italy at 4-5%. In other words, Uncle Sam, in his role as primary funding agent of the IMF would lose massive amount of money on the "market to fair value" arbitrage, only to bail out the latest European domino. As a reminder, the whole "under market rates" loan from the IMF was implemented in Greece and worked out just swell: at last check the 1 Year Greek bond was trading with a yield of over 300%. Oh, and La Stampa forgot to mention one thing: any changes to the IMF, which currently is massively underfunded and is why the organization was forced to create two new liquidity facilities: a Precautionary and Liquidity Credit line, since it is unable to fund its New Arrangements to Borrow, have to go through US Congress when it comes to expanding funding capacity. Yup, the most dysfunctional, corrupt and criminal thing in the world - the US House of Representatives, where unless everyone is short Italian CDS, this will never pass. In other words: this rumor is dead in the water.

http://www.zerohedge.com/news/uncle-sam ... pardon-imf