Technical deterioration

Technical deterioration -  preceded the accelerated Monday decline, which is why I pointed-out the 'narrow universe of stocks' carrying most of the weight of the preceding early November ramp, which tried (but we believe would fail) the effort to have this month replicate the preceding stellar 'wall of worry' climb.

While most snap-judgments of Monday's decline (welcomed here as we were a good bit short coming into the new week as you know), tried to tie-it to newer belief that 'the Fed will not be kept a bay allowing the upside to pay'; contrary it seems to the myriad of pundits who proclaimed last week how 'the market was ready to live with a Fed hike'. 

Now of course they say live with the decline that likely occurs because stocks either got ahead of themselves (no kidding), or because they now recognize a single 'rate hike' is the exception; and that (as I've noted) these come by series of hikes, 'not' a one-off and done modality. 

Actually this is not so simple as 'Fed reality bites market', as largely presented. Rather 'reality bites'. That reality goes way beyond what the FOMC will do; and targets most everything we've touche upon. This ranges from earnings, which in all seriousness I must point out are typically not viewed rightly when it goes to a discussion of 'multiples'. They matter more for an index than individual or sector stocks. 

How so? Let's just take energy. Oil stocks are now at a higher P/E, because earnings are obviously down; so now at depressed prices, analysts it seems want to downgrade them (what did they suddenly figure out?). When it comes to stocks, high P/E's typically exist TWICE. Both when a stock is overpriced, as well as when it is down, because earnings are down; so obviously the P/E will be high. Again recall my meeting several years back with the Chairman of Texas Instruments at CES. He had mentioned that the shares, deeply down at the time, were said by a major tech analyst preceding my visit, as overpriced. I asked simply: 'will TXN participate in an American economic recovery? Almost puzzled, he said 'of course'. I said: then the earnings will go up and the P/E is going to drop unless the share price keeps pace; so that makes it a buy not a sell, or will very soon. (Incidentally I bought TXN personally the next day and it was within a half point of the low; I did the same thing with Intel back then.) Of course that's not my point; but putting P/E's in perspective sure is. 

You're going to hear more about how 'Oil stocks' at 19 times are high; and just for now they may have some more downside room. You'll hear the same about an IBM, or a host of 'puffy' mainstream companies given the new GDP sobriety I have warned of for months. What you might not hear is that these additionally are under pressure, as desperate hedge and other money managers seeking to shore-up their poor performance (or bonuses?); simply lighten them up as a deterioration takes place, to limit losses or lock-in early gains, as the case may be. Also you're close enough to year-end that even if tax-loss selling isn't yet a big factor, the concern about it ahead may tend to limit bids in wounded areas.

Further, they won't talk much about the increasingly narrow group holding-up; it is convenient to blame this on 'Fed expectations', rather than reveal mostly a majority of money managers and strategists are well aware of a ever-narrower leadership profile, and all the internal 'bearish divergences' we recently noted.

Technically - we observed the unsustainable accelerated rising-tops pattern of the preceding first days of October; maintained our rather persistent (for an intraday trade) December S&P / E-mini guideline 2109 short-sale (whatever proportional form a trader might feel comfortable with; always remembering to take some gains, and if a scalper, to layer shorts back-on on rallies). Intraday, early due to personal scheduling, I even suggested that final hour rebounds of an intraday squaring nature would likely get sold into, and they sure did. 

What you had was our discussion last week of the first goal being roughly the S&P 2070-2080 area; fight a bit, then cave. What we did was break the lower end of that slightly; rebound almost to the upper-end, and then cave in the last minutes of regular trading on Monday. You know the lower levels as I'll touch on in the main video a bit; and you know China's negative numbers; which are in-line with our ongoing series of factual charts, rather than delusional 'hopium' about rapid recovery in 'submerging (eventually reemerging but not yet) Asian markets'. And you know how this is the 'new normal' for pricing of commodities and so on; as too many dismiss the last decade as normal, when it resulted to a degree from Chinese and similar hoarding, which is why it's myopic to say it has nothing to do with American prices (has a lot; including every farmer that has a crop for which there's an export market). 

There's nothing wrong with a slow growth mantra; in fact it's sort of normal. But it's insufficient for what businesses and governments need based on structures of virtually all deals and projects as they're presently financed. That's part of a bigger issue that they don't want to address, because it reveals that the range of pricing 'presumed' acceptable for a given product, no longer exists relative to the debt retirement structures as set-up. Sort of the inverse of the 'pension' challenge; where actuarial managers have no hope of achieving low-risk return levels as they're mandated (structured) as a goal. Think about it.   

In Sum -  We won't be surprised to see more jockeying and infighting; but the contention that November would NOT replicate October is very much alive; as is the ongoing 2109 Dec. S&P short-sale, for now. 

 Daily action - must address: if the short-sale in-whole or in-part is alive, which it is; then what are we looking for? Lower prices of course. But how low? Sure, I can say we'll let the market tell us, and we will. However for now; we believe the bulls will fight a bit longer around this S&P vicinity; and then, with breadth a bit more broken (4 to 1 negative on Monday), and the accelerated uptrend out, as projected; we'll measure something like 2055 as the next daily goal soon or more likely later in the week after some struggle. 

By no means should that contain the move; as I'll also describe a bit via video. I am a bit anesthetized this evening, so I hope my points are clear enough (I've tried and the market fully cooperated with our intraday pattern call as well) and that one realizes this is an ongoing process. Similarly our multi-week forecast Dollar strength renewal blossomed nicely; and I warned on Friday that while of course pleased, it was again becoming a crowded trade approaching 'par', so it would be normal to consolidate just a bit, as you don't get huge days like we had Friday, every day. And though bullish for over 2 years since 79-80 on the Index, and bearish on the Euro from 1.38-1.40, we've also called the dips and rallies earlier this year, when we looked for consolidation, but also said there was no chance for a Dollar collapse or big sustainable Gold rally, just bounces, as this is a deflationary not inflationary environment until otherwise noted. Yes, I do expect above 100 Dollar (DX) readings after this respite.