Dr Faessel - ON THE MARKET -- 8-19-2011

Global Panic! Recession? Tremendous Value... S&P futures are down 20 points at this posting. Banks are getting slammedagain in European trading; Barclays (BCS) -6%, RBS (RBS) -3.7%, Lloyds (LYG) -6%, SocGen (SCGLY.PK) -3.4%, Deutsche Bank (DB) -3.2%, and UniCredit (UNCIF.PK) -5.3%. However HSBC (HBC) is in the green at +0.1%. While we had more lousy economic news here in the USA the situation in Europe continues to implode. European banks hold gigantic amounts of very iffy government bonds from the 17 members of the EU. It's a titanic mess. Can it really be up to Germany and Norway in a couple of other (saner) countries to bail-out the rest of the screw-ups? It's like giving an “on the floor” drunk carte blanche to continue his sick ways. I've spent quite a bit of time in Europe and I can only imagine what the man in the street Germans are thinking regarding paying for the Greeks unrestrained behavior. Unbelievable! Yesterday, bad news was the order of the day, all day and stock markets got slammed. The Dow was off 3.8%, the S&P off 4.46% and the NASDAQ up 5.35%. Crude oil fell to $81.6 a barrel. Up / down volume was skewed immensely with an overwhelming down bias. 2.7 billion shares on the down side and only 64 million on the upside in the NASDAQ and in the NYSE it was declining volume of 1.7 billion with only 44 million on the upside. Advance / decline's were also at historic levels; in the NYSE 2917 issues were down and 176 up. And there was an intraday TICK of minus 1689, about as low as you'll ever see. Yesterday volume on the exchanges was well above average, but not as high as it was last week when the market was putting in its lows. There is tremendous fear in the market as evidenced by a 10-year note that closed at a yield of 2.064% after ticking 1.99%. The VIX had a high of 45.28. Extreme fear was rampant. Investor sentiment and consumer confidence is hideous. On Monday August 8th the McClellan Oscillator posted its lowest reading EVER at minus 438 and early the following day the market put in its lows at (SPX) 1101. Yesterday's plunge could well be the "test" of a double bottom, but the McClellan is only in neutral at minus 70. However, all other technical indicators suggest hyper oversoldness already. While the lows yesterday were put in later in the day the pattern suggests that we "pretty much" consolidated over the entire session except for the first 45 minutes. A plus! So, I think it's very possible that we may well test those lower reaches of (SPX) of 1101 today and possibly exceed them-somewhat based on the early futures, but I think there is a strong chance that we've got a 9-day base that could hold up. That's the best case scenario. Worst-case, we blow lower another leg and that would almost certainly suggest recession. We are already off 16% from the highs, perilously close to the 20% signpost of Bear markets. Coming off the all-time oversoldness and appallingly fearful sentiment has set the stage for some good lows. Recall we were off 16% last year from April to June. Certainly, very scary times... We're already past half way through Q3 and I believe it's unlikely that we go into a negative GDP this quarter. FedEx traffic is up, as is UPS's. Retail sales are up and rail car and truck loadings are also putting in plusses. Gasoline prices are at recent lows. In addition there's been some improvement in Cap-X spending. Most analysts had GDP projections of 3% growth so I think it's unlikely that this recent shock will negatively influence the economy to the degree that it puts us in a recession this quarter. Also, corporate America is flush with cash and our banks are awash in liquidity. And as the old saying goes, "don't fight the Fed." Importantly, the Fed just told us that interest rates will be at the super low levels for two years. The S&P 500 forward price earnings ratios are the lowest since the 1980s and importantly they're sitting on $2 trillion in cash. 60% of the (SPX) out-yields the Treasury 10-year yield. Resistance in the in the S&P 500 (SPX) is at 1150. The 200-day moving average resistance is at 1285. The 50- moving average resistance is at (SPX) 1274. Price support in the S&P 500 (SPX) is at 1144 then 1101(the low of the down stroke). The (SPX) closed on yesterday at 1140.65 Thursday's key indicators and metrics: · McClellan Oscillator is in neutral @ minus 70 · VIX – 42.67 · Gold (COMEX) $1822.0 · Swiss Franc – 1.2636 · The Treasury 10-year yield 2.064% · Crude oil (NYMEX) $87.88 · CBOE Put / Call Volume Ratio – 1.49 · Aussie Dollar – 1.0334 · US Dollar Index – 74.32 · 3-month $ LIBOR at 0.298 · Copper – 3.966 · Silver (COMEX) 40.688 · Brent Crude $106.9 · Euro – 1.4320 · Canadian Dollar – 1.0091 For my Best Ideas for 2011 please send an e-mail request to: Dr.Faessel@onthemar.com