Gathering Weakness

February 24, 2010 · Posted in Weekly Posts · Comment

We were getting all set to be bullish but that is apparently not going to happen anytime soon. The situation in Europe is not going to resolve itself any time soon and it may well escalate into a full-blow crisis (no, it is not nearly at crisis stage yet). The Greeks are trying to play chicken with the rest of Europe, delaying their bond offering and in doing so running the risk of running out of cash. Then the Germans and French will have to bail them out … right? At the same time the public statements by Greek officials now are of the tone that says 1) it’s not our fault the Nazi’s took all of our wealth and b) well Italy is ore crooked than we are and they haven’t been caught yet. Give us a break. At any rate the dollar is showing continued strength, gold is weakening, bonds are strengthening and the US equity markets are in a perfect A-B-C wave formation that, if we break down, portend a big drop - maybe to 960ish. Looks like we need a good bracing sell-off to clean out he cobwebs!

While all of this is going on US consumer confidence is collapsing, new some sales are collapsing, and the incidence of problem banks is rising rapidly. As Greece is still 2-3 weeks away from their next report out and as they need to have a bong auction soonish, it would appear that the charts and fundamentals are aligning that the market should make a move within a week, i.e. in 0 - 7 days and it is likely to be down. We remain in cash but will likely short heavily in a breakdown (see chart below).

As for energy stocks - we really want to buy energy, really we do but there are three issues that are in the way: 1) we keep accumulating crude oil every week in the EIA report, 2) too much talk of bubbles in China and too many rosy equity analyst reports about how this or that oil stock is going to double this year makes us very nervous about energy, and 3) they just are not performing very well - and this has been the case for sometime. So, o energy stocks right now.

Below are the charts for USD, S&P, TLT (bonds), and gold.