The global economy is floating on an ocean of credit, and a good thing too as our cartoon friend Wimpy reminds us. Without it, he would be a hungry puppy by next Tuesday and nearly seven billion world citizens would be worse off if barter, and not credit, was the oil that lubricated trade. Unlike Wimpy, early societies functioned without an exchange (money) or the promise to pay it back in the future (credit).

Growth was limited, however, because savings or investment could not be incented properly. Those that wanted to save for a rainy day had no means to express that caution; better to consume a banana or a hamburger today than to watch it rot and become worthless on Tuesday.

But money changed all of that and the ability to borrow and exchange it for repayment at some future date was the economic elixir of the ages. Shakespeare, with his admonition to “neither a borrower nor a lender be,” might have won a 17th century Pulitzer, but definitely not a Nobel Prize for economics.

http://www.pimco.com…ever-Comes.aspx

If Shakespeare were a stock trader, he might poetically state that the market since August has been “full of sound and fury, signifying nothing.”

Despite a fair amount of bullishness from the mainstream media, all this rally has accomplished so far is a trip back to the top of the recent trading range, as shown in the chart below.  This chart also shows my preferred view of the approximate path likely to be taken by the SPX into December:

I am of the opinion that this rally will eventually break out of that range, at least for a few weeks or so, but I think it’s likely we head a bit lower first.

I always use the market action and price as my most important indicators, but there is another indicator that’s worth mentioning at this juncture.  The Volatility Index (VIX) has been trading in a range since August, similar to the SPX; and, also similar to the SPX, it recently whipsawed out of that range and immediately back into it.  Whipsaws often lead to strong moves in the opposite direction (see recent rally).  If the VIX continues rising here, that would be bearish for stocks.  I’m not suggesting the VIX will return all the way to the top of its range – however, if it did, that would obviously have very bearish implications for the broad market.

In recent sessions, the VIX has been rising even though the SPX has been trading sideways-to-higher; this behavior in itself is generally considered a bearish sign for stocks, and often signals lower prices are around the corner.  (VIX chart below)

Finally, the short-term wave counts are starting to come to light.  In the case of tops, much more so than bottoms, it can be difficult to nail the exact turn; especially when the larger preceding waves were sideways and open to several interpretations, as has been the case since August.

Nevertheless, the market has finally revealed enough structure to allow me to narrow my counts to the three most likely possibilities.  Of those three, two of the counts are apparent, and one is speculative — and the speculative count is one we should be able to confirm or rule out fairly quickly. 

The chart below portrays the two most apparent counts, and their most likely resolutions.  I have simplified the labeling to show only the ending points of the larger waves, ostensibly to make it easier for viewers to follow (but in reality, largely because I accidentally deleted my more detailed chart!).  

The preferred count is shown in red, and argues that Wave A completed its top on Tuesday, and is now in the process of correcting down toward the 1125 zone. 

The alternate count is shown in turquoise and argues that Wave A actually completed at a lower price point (1224) than the orthodox top, and the market is now forming what’s called an “expanded flat.”  In an expanded flat, the b-wave of the correction actually exceeds the price high of the larger preceeding wave (see “Alt: (b)” label, which is higher than the preceeding “Alt: A” wave); and the c-wave is then disproportionately long relative to the a-wave (see “Alt: (c)” label).  If this alternate count is playing out, the 1175 zone would be the likely target zone for a bounce and resumption of the rally.  Probably not coincidentally, the 20-day moving average is also crossing approximately 1170 right now.

 
Those are the two most visibly apparent options, based on what the market has revealed thus far.  

My “speculative count” is shown below.  From a purely technical standpoint, I am actually somewhat partial to this speculation. Here’s why: the wave labeled blue “a” on the chart below is almost certainly a five-wave impulse, not a 3-wave correction.  In fact, the structure of that wave is what led me to previously believe - for a couple days anyway - that October 12th (SPX 1220) likely marked the top of the larger red A wave.  Impulse waves must be followed by at least one more impulse in the same direction, and there is nothing to pair the blue a-wave with other than the wave labeled blue “c”.  Hence the two impulse waves complete the pair, which in turn completes a larger wave; in this case: blue “4″.  Otherwise, the blue a-wave is something of an anomaly to any other labeling of the structure.

Further, the fifth wave of red wave A should either be an impulse wave, or an ending diagonal of some type.  If we accept the labeling of blue “4,” then it becomes very difficult to view Tuesday’s move to the 1233 high as as a five-wave impulse to form a complete fifth wave.  It certainly appears to be a three-wave move, which lends itself to being part of a corrective sequence or ending diagonal (either the end of one, as detailed yesterday, or the start of one as shown above).

Outside of drilling-down on the technicalities of which wave is what, the other thing that an ending diagonal could accomplish here would be to work off some of the bearishness present in the equity put/call ratio, which remains very elevated. 

Of course, the rising VIX might contradict that whole theory.  Either way, this speculative count can likely be ruled out with a trip beneath 1190, and likely confirmed with a move over the recent highs.

Each day going forward, the market will reveal a few more pieces of this jigsaw puzzle.  At this juncture in the market, most forms of technical analysis can’t tell you much more than ”the market is near long-term resistance, and 1190 is short-term support.”   One of the beauties of Elliott Wave is that it’s one of the only forms of technical analysis that even allows us to make detailed projections in a sideways market like this.  No one can say for sure exactly what’s going to happen here, but at least with Elliott Theory, we have a pretty good idea of what to look for.  Trade safe!

html;_ylt=AjfrEwqZhBHlqR1eHUulkOu7YWsA;_ylu=X3oDMTE1dTRxczY3BHBvcwMzBHNlYwN0b3BTdG9yaWVzBHNsawN1c3N0b2Nrc3BvaW4-
?x=0&sec=topStories&pos=main&asset=&ccode=' class='bbc_url' title='External link' rel='nofollow external'>Link

From the “So What Else Is New?” department…

January 31, 2010 “Information Clearing House” –- -Maybe “whitewash” is too harsh of a term to apply to the Financial Crisis Inquiry Commission’s (FCIC) report, but it certainly doesn’t break any new ground. Nor does it achieve its real purpose, which is to figure out what triggered the financial meltdown and (hopefully) restore confidence in the system. It fails on both counts, and it’s not hard to see why. The investigative panel was clearly instructed to point out the dangers of insufficient regulation rather than focus on the massive incidents of fraud that were perpetrated by the bankers and other financial kingpins. It’s a clever way of blaming the system instead of the people who were responsible. Here’s an excerpt from the report that’s been widely circulated in the media. It exposes the FCIC’s real agenda and shows that the commission is little more than a cover up.

From the FCIC Report: “We conclude this financial crisis was avoidable. The crisis was the result of human action and inaction, not of Mother Nature or computer models gone haywire. The captains of finance and the public stewards of our financial system ignored warnings and failed to question, understand, and manage evolving risks within a system essential to the well-being of the American public. Theirs was a big miss, not a stumble. While the business cycle cannot be repealed, a crisis of this magnitude need not have occurred. To paraphrase Shakespeare, the fault lies not in the stars, but in us.”

While this seems like an admission that crimes were committed, it’s really just the opposite. The authors are saying “We’re all to blame”, which is pure baloney. The “captains of finance” didn’t simply “ignore warnings” or “fail to question, understand, and manage evolving risks”. They deliberately stole a great deal of money from a great many people. Period. That’s a crime and they need to be held accountable. Unfortunately, the Commission uses the report to obfuscate the facts and confuse the public about what really needs to be done.

http://walshal.wordp…or-wall-street/

I like Obie, but he has drunk the Kool Aid. We are doomed. He’s listening to the advice of those very same world renowned egonomists who never saw the current mess coming. How could those who never saw it coming in the first place, and didn’t recognize it after it had already begun have any clue how to get us out of this mess? It makes no sense. But Obie is obviously listening to them. So we are doomed.

Doomed, I say.

What’s my advice? After all, I was one of those non-economist types–called bears– and we are multitude–who did see this coming. People like Bill Outada Poole, Big Dick Cheney and others say that nobody saw this coming. Well, the government bigshots and mainstream egonomists didn’t see it because they were the problem. It was their system. Greenspan built it and he was their maestro. Those of us malcontents on the outside looking in–we saw it and we screamed and yelled and ranted and raved, but nobody on the inside wanted to hear it. They were having too much fun sucking on the teat of the Ponzi scheme they had created.

But that’s for another time. The question is what I think “they” should do now.

Nothing. Because contrary to their conventional wisdom, doing nothing is actually much more likely to help the situation than following the advice of those who caused the problem.

That’s right, nothing. Oh, we definitely should have a little trickle up economics–some programs to allow the unemployed to subsist. We need to spend a lot less money on guns and more on butter for sure. And I guess we’ll have to raise the age for Social Security to 70, and roll back government fat cat pensions.

As for bailing out the bankers and brokers and corporate CEOs and all the friends of the politicians, I say let ‘em fail. Too late, I know. Bailing out the rich bankers and brokers will not save the system, it only puts the US taxpayer, instead of the investors who assumed the risk in the first place, in the position of bagholder of last resort. Why should we be the victims just to bail out the irresponsible self aggrandizing bankers, financiers, and economists, the thieving corporate CEOs and CFOs, and the lazy, irresponsible, and crooked investment managers who caused this mess? These spending programs are burdening US from now till kingdom come with a problem that those people caused. Yet we are bailing THEM out. WHY? Because they have the power. We don’t.

Take for instance Senator Scummer thanking Citibank today for throwing its support behind the bankruptcy proposal to allow judges to force mortgages to be crammed down. What the hell does Citicorp have to do with the legislative process? Why should the Congress need that company’s support to pass any legislation? Why are OUR representatives THANKING THE CRIMINALS? Whatever happened to government of the people? The extent to which the corporations have taken over this government is shocking. The politicians don’t even pretend any more. They thank their corporate bosses publicly for giving the OK to legislation.

It’s an outrage.

OK, just another outrage. After a while you get numb to it. That’s how they get you to play the game and turn over the fruits of your labor. They slowly and surely wear you down and numb you to the pain. Orwell wrote the manual 60 some years ago. Did he suspect, did he know, that he was predicting the future of the United States of America?

They’ve already done this business of borrow and bail twice and the result is as obvious as the finger up your nose. Just look at what happened to the markets the previous two times where the federales engaged in massive public borrowing over a short period of time, last May and last October. The outcome will be no different this time.

The borrowing for “The Stimpack” as currently envisioned will crush the stock market and destroy whatever is left of confidence world wide. It will cause an even greater crisis by potentially destroying the world’s perception of the creditworthiness of the US Gummit itself. We will ultimately be at the mercy of our creditors, and they at ours.

Unless they scale this Stimpack thing down to next to nothing, or by some other miracle they don’t try to raise the money, we are doomed. I think our best hope is that when they begin to implement this monster and things start to go over the cliff they will, like Wily Coyote, somehow grab a branch, pull themselves back up, reverse course, and stop all the damn borrowing.

As so many bears have pointed out, we cannot cure the disease by giving the patient more of the same poison that caused it in the first place.

Furthermore, substituting the US Gummit in the sick bed of the financial system as the dying patient of last resort is the height of folly and irresponsibility. We will now all pay the price, doomed to a pitiful, sickly existence for generations to come.

If Shakespeare lived today, he would not have suggested that they should “kill all the lawyers” because he would have had economists as his foils instead.

Polonius’s advice would still hold, however.

Neither borrower nor lender be.

________________________________________

Try the Professional Edition risk free for thirty days. If, within that time, you don’t find the information useful, I will give you a full refund. It’s that simple. Click here for more information.

BEAT THE JANUARY 15 PRICE INCREASE! Subscribe now and lock in the current low rates. Due to the increased complexity and critical importance of following the Fed, Treasury, and FCB actions as they impact US markets, and the additional time required to produce the Fed Report, the price of the Money, Liquidity, and Real Estate package will be increased as of January 15. This increase will NOT affect existing subscribers, and those who subscribe NOW! Be prepared! Stay ahead of the herd. Follow the Fed and friends in the Wall Street Examiner Professional Edition Fed Report in the Money, Liqidity, and Real Estate service package.