Parabolas And Channels

Insanity is the best word for this.

The Fed Statement was not hard to read this time.

"In these circumstances, the Committee's predominant policy concern remains the risk that inflation will fail to moderate as expected. Future policy adjustments will depend on the evolution of the outlook for both inflation and economic growth, as implied by incoming information. "

Oi. You didn't read Mr. Market, did you? Obviously not.

Or did it.

Here's our buddy again, the S&P500



Just can't get through that channel, can you? And note that it took a half-hearted stab again at the bottom of the channel, but didn't get there either.

On Stochastics and RSI, we're still showing severe overbought levels here, and the MACD is also overbought severely but drifting higher.

Now here's a scary chart




Does the slope change there scare you? It should. You think this is sustainable - or based on fundamentals? It kinda looks like China's chart over the last three months.

Hmmmm..... oh, and still no breakthrough on that wedge.

I cannot tell you when this breaks, although I continue to see cracks develop in the dam. Today, the Canary is doing fine. But tomorrow?

I think we are absolutely in a serious danger zone here. The bears are pretty much finished - anyone who has been shorting the DOW the last month has, obviously, been crushed. I keep hearing all the peals of laughter at the suggestion that anyone should do anything but "buy buy buy buy."

Hmmmm... oh, the yield curve steepened its inversion today. Is that good? One would think not.

Economy doing great? Not according to the consumer credit report. Retail sales is coming this week. That ought to be an interesting number. Toll Brothers has said housing is absolutely in the tank, and let's not forget - Toll is not a company that sells to the lower and middle end of the market - they are a luxury home builder!

If they are feeling the heat, its across essentially all areas of the housing portion of the economy.

Why do people keep buying? Its all about liquidity. Bond rates suck (Treasuries anyway) so people have to have somewhere to put their money, and it sure can't go into real estate. This results in bidding up stocks and junk debt, essentially narrowing the spreads.

But that is a statement that the risk is in fact lower than it really is, in both cases.

You have to be insane to get out in front of a freight train, but you also have to be crazy to think that this will continue on as if "Goldilocks" is some dream. Nonsense. There's no evidence that the consumer is "healthy" - indeed, the evidence all points the other way. Nearly 250,000 real jobs lost last month - this "80,000" number wasn't from an actual survey, it included the "silent" birth/death adjustment that is a pure "black box" into which nobody can see. Is it accurate? Good question - I can't tell you and neither can anyone else.

But this much is certain, because we can see these facts:

• The consumer is spending from his credit cards. He is not buying from his hourly earnings, and he's not saving anything.
• The consumer's "Home ATM Equity Machine" is closed and padlocked.
• Debt-to-income ratios among Americans are rising precipitously.
• The mere mention of a possible LBO - a rumor - is good for a 5-10% pop in your stock price.
• More and more of that debt is being shifted to high-interest forms such as credit cards, and even home equity lines cost more in interest than earnings are escalating. In other words, the Consumer is digging himself a deeper and deeper hole.

I am certainly not one to get in front of a thrown piano, but on the other hand, I know a parabolic blow-off when I see one.

Will it continue onward? Maybe - for a little while. But our wedge continues to run out of room, although it sure looks like the S&P wants to go all the way to the edge before it breaks out - or down.

I had someone try to chide me for my call on the February top. Heh, if you think this run is sustainable, I hope you're in it on the long side. No stops required, right? We won't go below that level. That's what you're saying if you take that view. Have at it - but if this ends in tears, don't say you weren't warned - because you were.

You aren't going to see me buy into this. Not here. In retrospect, should I have bought into it in February after the drop? Maybe, although the DOW wouldn't be where I'd have gone anyway, and I've still got my SPY position (which I've had since '03); the SPX is 3% over the February highs. A move upward 5% or so beyond a nominal top is not only reasonable, its expected. Try into that at great risk.

Again, if we break out of the wedge to the topside then I'm in long. No argument there. But let's see a decisive move on strong volume, not this pinging thing - as of today there are four straight days that we've banged up on it or stuck a pin through but couldn't blow past.

We have about another 10 days before the channel pinches to zero width......

More as I see it.....