Stock Charts: Still Waiting for a Deal in Washington

$SPX Daily:  I'm still looking for a finish to the wedge pattern and most likely to correlate with Washington solving the debt ceiling issues.  I have two general thoughts.  The first is a bottom for Wave E on last Friday or this coming Monday or maybe Tuesday.  Wave E would equal Wave A in time, and both would be half of Wave C in time.

The alternative would be a bottom to Wave E around August 19th when Wave E would equal Wave C in time.  Currently, in this view it would be a wedge for Wave E.  We might need more time for the BBs to pinch and the MACD finish it's work lower and a wedge structure is supportive to that idea.

$SPX Weekly:  On the weekly, there's still a little room before we test the up trend line.  It's something we should continue to watch. 

IBM:  Stock now has divergences forming with the MACD ready to turn down.  Will price and gap support hold for now?  Another push up should pinch the BBs too.

AAPL:  The stock still holds the steep uptrend line.  We could easily get another bounce higher.

My Watch List:  I have two bearish idea on my list.


WYNN:  Price reversed off the top channel line with the MACD rolling.  I'd prefer to see this bounce again if I were to short it though.

CMG:  Divergences in place but price has yet to break below the support line.

From My Trading List:  Just like I suggested Thursday, if the market moved lower Friday I would close my bearish trades from Thursday.  We closed both SRS and CMG for easy gains.  I was not interested in holding them in case Washington provided a debt ceiling solution.

Next Weeks Game Plan: Since the market is waiting for Washington to provide a deal, trading could be tough until there is one, so I'm going to remain light and nimble.  I want to see if we get that deal and how the market responds for a clue to Wave E.

Happy Trading

J.D. Rosendahl, Rosey

It's Being Over Shadowed By Debt Talks: Layoffs May Worsen if Economic Growth Doesn't Pick Up

The news these days is filled with spending and debt talks, but it's over shadowing something very important:  Layoffs May Worsen if Economic Growth Doesn't Pick Up

Thousands of layoffs were announced in just the past week, and that trend could continue if economic growth does not start to pick up speed.

Merck [MRK 34.13 -0.80 (-2.29%) ] on Friday became the latest company to announce a new round of job cuts, saying it would trim 13,000 employees from its work force of 91,000 by 2015. It joins HSBC, which is reported to be trimming 10,000 jobs from its global staff, and Borders, letting go another 10,700 workers, as it shuts down all of its retail stores.

"These heavy cuts are a sign the economy is stalling. The GDP numbers back it up. This is a concrete result of what you get when you see GDP stalling under 2 percent, like we've seen for two consecutive quarters," said John Challenger, CEO of Challenger Gray and Christmas, which monitors layoffs.

"It's across the board industries. It's not like the auto sector or something doing poorly. We are seeing pharmaceuticals; defense; retailers - in terms of Borders; and financial firms - in terms of Goldman..It's so very broad-based and it certainly poses a risk to the economy turning around, as people lose their jobs, and a lot of consumers who support these companies lose their jobs," he said.

Friday's report of first and second quarter GDP drove home the sluggish state of the U.S. economy and provides a backdrop for a 9.2 percent unemployment rate and the string of poor jobs reports in the past several months. The second quarter grew at a 1.3 percent pace, well below the 1.8 percent expected by economists, but the shocker was a revision knocking first quarter growth down to 0.4 percent, from a previous 1.9 percent.

Economists have been expecting second half growth to accelerate to a level of about 3 percent.

"The (GDP) revisions were pretty massive. The risks have been to the downside for a few weeks," said J.P. Morgan economist Michael Feroli.

Feroli expects to see growth of about 2.5 percent in the current quarter but that is still a low level of activity.

"I don't think it's sufficient to get any meaningful job growth," he said.

Other companies laying off workers include Lockheed Martin [LMT 75.73 0.44 (+0.58%) ], which is letting go 6,500. Credit Suisse [CS 35.94 0.55 (+1.55%) ] is reported to be cutting 2,000, while UBS [UBS 16.48 0.21 (+1.29%) ] is reported to be trimming 5,000 and Goldman Sachs [GS 134.97 -0.87 (-0.64%) ], 1000. Cisco [CSCO 15.97 -0.04 (-0.25%) ] is laying off 6,500, and Canadian-based Research in Motion [RIMM 25.00 -0.46 (-1.81%) ] is cutting 2,000 jobs.

Evidence of July's hiring and firings will show up in the monthly employment report next Friday.

"I think it will be just a so-so number. I would say it is probably under 100,000," Feroli said. Job growth has been flat recently, with just 18,000 workers added in June and 25,000 in May. That compares to 217,000 in April.

Moody's Economy.com economist Mark Zandi said the weak job environment has been the result of companies not hiring, as opposed to firing.

"So far, it's been a lack of hiring, but I thought it was more due to things like the Japanese quake effect on motor vehicles. But when you see these kind of growth rates, you're (companies) going to start refocusing on costs and that means layoffs. If we stay here much longer, there's going to be more cuts," said Zandi. U.S. auto manufacturing was impacted after the March earthquake because of the unavailability of parts from Japan.

Zandi said positive action by Congress on raising the debt ceiling and structuring a fiscal plan might also help the economy and the job situation, he said.

"Obviously, the economy is really struggling to grow..barely keeping its head above water in the first half. I think growth should accelerate in the second half of the year, if we get on the other side of the debt ceiling debate soon, and they extend the ceiling through to the other side of the election," he said.

Economists have said the drama around the debt ceiling extension and deficit reduction has sidelined business activity and consumers, but the amount of direct economic impact is hard to gauge. Congress has until Tuesday to extend the debt ceiling and is so far unable to find a deficit reduction plan it can agree on. (Follow the latest in the debt debate here)

"The economy is just sucking wind and will be suffocated if they don't nail this down," said Zandi.

"I think if they only extend it a few months that will be a prescription for going back into a recession as well," Zandi said.

Challenger releases its monthly layoff data next Wednesday. Challenger said the number of planned layoffs at U.S. firms increased in June for a second month. Employers in June announced 41,432 layoffs, up 11.6 percent from May and up 5.3 percent from the year earlier. Downsizing in the U.S was at its lowest pace in the first half since 2000.

 
Once again we get a glimpse that nothing on Main Street is improving.  GDP under 2%, layoff announcements, and we have higher costs for food and gas! 

What's disturbing is layoffs are across many industries and not sector specific!  That reflects broad weakness!

Economists expect growth to accelerate to 3%.  Exactly from where?  I can't get comfortable with that forecast at all!

A resolution to the debt ceiling should provide some benefit as the uncertainty is removed.  We could see some positive data post debt ceiling resolution, but at best that could easily be short lived.

The problem we face is we now have layoffs in the private sector when we could see continued layoffs at the municipal level.  Even if we some how got to GDP of 3%, we probably won't add much hiring at that level of GDP.

If we continue to struggle we could easily see more layoffs.  Layoffs impact real estate values again. It  could spark a wave of much lower consumer spending.  Those impact tax collections and muni budgets in the future.  It could also bring the stock market back down.  That all sounds recessionary!

The short of the story is not much has changed on Main Street, it's on thin ice!

Hope all is well.

J.D. Rosendahl, Rosey

Should We Take Stock in? Insiders Selling at Unusually Fast Pace

We should all take a little stock in what insiders are doing with their holders:  Insiders Selling at Unusually Fast Pace

Commentary: What do insiders know that outsiders do not?

Bad news, stock-market bulls: Corporate insiders are selling their companies' shares at an abnormally fast pace.

In fact, one measure of that selling activity shows insiders of NYSE- and AMEX-listed companies recently were selling at the fastest rate since data began being collected in the early 1970s, four decades ago.

On the theory that insiders know more about their companies' prospects than do the rest of us, this is an ominous sign.

Corporate insiders, of course, are a company's officers, directors and largest shareholders. They are required to file a report with the Securities and Exchange Commission more or less immediately upon buying or selling shares of their companies, and the SEC makes those reports public.

One firm that gathers and analyzes the data is Argus Research, which publishes its findings in the Vickers Weekly Insider Report. One indicator that the firm calculates is a ratio of the number of shares that insiders have sold in the open market to the number that they have purchased.

In the week ending last Friday, according to the latest issue of the Vickers report, this sell-to-buy ratio stood at 6.43 to 1. This is higher than 95% of other weeks' readings over the last decade.

That's ominous enough, but consider last week's sell-to-buy ratio for just those issues listed on the NYSE or AMEX. That came in at 13.10 to 1, which is the highest reading for this ratio since when Vickers began collecting the data, which was October 1974.

Is there any way for a bull to wriggle out from underneath the weight of these high readings? Perhaps, though it's not easy.

One counterargument bulls can make is that it's entirely normal for insiders to sell when the market rallies, and therefore such selling does not carry particularly bearish significance.

But the stock market hasn't exactly been rallying all that strongly. To be sure, the latest sell-to-buy ratio reflects last week, not the current one, and that week did have a better tone than the current one — but not all that great a tone.

In any case, the other occasions in recent years in which the sell-to-buy ratio rose to close to the same level it is today were on the heels of more or less uninterrupted rallies over the previous two or three months. That's not the case now, of course, suggesting that insider selling this time around may not be so benign.

Another bullish counterargument is that the volume of insider transactions last week was light, as it usually is during earnings season. That's because insiders are either reticent to buy or sell their companies' shares in the days and weeks before their companies report earnings, for fear of being charged with acting improperly.

But I'm not sure how much weight to put on this argument. There still were several hundred firms with insider activity last week, and it's unclear why earnings season would have discouraged just those insiders who otherwise were interested in buying.

Furthermore, it's worth remembering that the extensive Vickers database encompasses many other earnings seasons besides the current one. Also, the latest insider sell-to-buy ratio is higher than almost all comparable readings from those prior seasons.

Perhaps the strongest counterargument the bulls can muster at this point is that the insiders are not infallible. That indeed is true. Still, researchers report that they have been more right than wrong.

At a minimum, I think we can all agree it can't be good news that insiders recently have been selling at such a fast pace.

 
It's difficult to use data like this to time a stock change in direction, but I feel it's great data for an intermediate or long tern economic and stock market view.

I think company executives see tough times coming.  It might be slower growth, an out right recession, changing tax codes, balanced budgets and lower government spending from local to federal, aging boomers, the list of head winds around the corner is quite large.

Hope all is well.

J.D. Rosendahl, Rosey

Stock Charts: Market Continues to Street Over Debt Deal

$SPX Daily:  The market is currently driven by debt ceiling talks.  So let's look at the market in that view.  Below, I've labelled my primary view of ABCDE.  Wave A is half of wave C in time.  A bottom to wave E in the next couple days would make Wave E = to Wave A and half of Wave C based on time.  Ironically, I was looking for a potential high point a week ago on this time frame coming up, maybe the turning point is a bottom of some sorts, maybe the ABCDE.  Something worth watching, but nothing I'm trading.  It is a reason for me to keep the bearish trades light and short in duration.  Price has 3 likely spots for the end of Wave E.  Just below at price support and the lower BB, the 200 day MA or the bottom of the wedge.  I think at least the 200 day MA.

$VIX:  If I'm conceptualizing the end of Wave E into the $VIX, a bounce up to the first blue line might equal the market testing the 200 day MA.  A move up to the top blue line might equal the market selling off down to the bottom wedge line.  Again, just spit balling my primary view.

$CPC Daily EMA 5:  Here's a little red flag.  Bottoms typically see this chart peak over 1.05 to 1.10 while the MACD is over bought.  Price is nowhere near that and the MACD is about to turn up.  Interesting little red flag.  It doesn't support a bottom in price!  It would suggest for now that the market could easily test bottom wedge line.

My Watch List:  I have 3 very aggressive bearish trading ideas:

CMG:  Today's bounce stalled at the gap and then failed.  Divergences in place with the MACD turning down.  If the markets continue to stress about the debt deal this could sell off easily tomorrow.  BBs are pinching so price should see movement soon.

SRS:  It tried to break above cluster resistance today but failed.  Divergences in place and BBs pinching so we should see price move soon.

WYNN:  Price stalled at the channel and now the MACD is turning down with the BBs pinching.

From My Trading Desk:  Early in the day we shorted a half position on CMG, as I wasn't believing in the early bounce in price.  When SRS hit the upper BB and then started to fall we sold our position right at the 50 day MA for a 3% gain.  I didn't have the time to watch the market most of the day and didn't want to stress over it.  Late in the trading day, I bought back SRS.  We almost shorted WYNN.

So, we are stuck in No Man's Land for now and the market is stressing over a debt deal.  I still think we get one some time between now and mid August.  That could spark a sharp relief rally.  Until then, the markets could be on edge as they stress over the uncertainty of a debt deal and US default.

IF, the markets sell off tomorrow going into the weekend because traders do not want to be long over the weekend because there has yet to be a debt deal, I will probably close my bearish positions before the close on Friday.  The thought is I don't want to carry a bearish trade into the weekend and see a resolution from Washington over the weekend followed by a large bounce in the market.

Happy Trading

J.D. Rosendahl, Rosey

Stock Market: Ouch, the Market Takes it on the Chin

I'm still super busy at the office, but given the day in the markets I have a few more charts than the prior couple days.  A quick review of the headlines today and it seemed like one negative story after another covering everything from debt ceilings, taxes, the PIIGS, and then some.

$SPX 60 Minute:  Even with the large down day, we really haven't done anything but expand within the sideways pattern, which I've been discussing the past few days.  IF, we are still building a wedge structure then E looks to be expanding.  I say IF because the most bearish views are still alive, as much as I don't think those are going to be viable, they have yet to be completely ruled out.

$SPX Daily:  The blue box is my target zone for E.  Note the MACD is trying to turn down, so more selling pressure could be coming in the near future and test of the 200 day MA is not out of the question.  Next stop should be the lower BB.

The Risk Chart:  On the daily, it has yet to push below the lower BB, which is where we usually see the market bounce.  If we are going to finish wave E, it's possible that both the daily and weekly risk charts push below their lower BB.  This is something I'm watching, will the sideways pattern complete with ABCDE when the risk charts are below their lower BBs suggesting a bounce correlating with a wedge?

IBM, JNK, AAPL:  Both JNK and IBM reflecting bearish divergences forming, but have yet to really break down.  Further downside could be a negative for the markets.  AAPL looks stronger as the momentum darling.  We really need to watch IBM and AAPL because of their weighting in the indexes.

One of the things I would encourage the reader to do is look at the charts of household names and market favorites like UPS, UTX, HON, and MMM.  All four very large and successful companies broke down in price today.  While IBM and AAPL are holding up, there are very strong companies that look exceptional weak today.  3 of those companies are DOW components and the other is a DOW Transport component.

My Watch List:  I have a couple really aggressive bearish ideas.  I really didn't have a lot of time today to watch the market but this is what I did look at.

CMG:  We had a price high, then what looks like a running wedge, then another price high built on divergences.  Was that wave 3, 4 and 5?  Only thing missing is a price break down.

SRS:  Yet another divergence forming on what could be a double bottom.  The black line is the first real solid trigger.  That happens to be cluster support too.

From My Trading Desk:  A few days ago, I thought the market would push a little higher and then stall.  At that time I had a couple of longs on CYN and MOS, but I took those gains because there performance didn't look to have much follow through.  Since then, I've been waiting for the market to show us something worthy of a trade.  A lot of stocks took on a more bearish look today technically. 

We scalped a gain on a half short on CMG.  I like the idea of shorting this stock, but went with the scalp because it has held up rather well and would like to see a little more break down.  I also bought a half position on SRS.  It's a touch below the trigger, so I went with a half position. 

Happy Trading

J.D. Rosendahl, Rosey

Stock charts: Market Continues to Churn

Still a super busy week at the office, so I'm going to keep it brief.

$SPX Daily:  We continue to grind inside resistance and support in a large sideways pattern.  Nothing has really changed.  My expectation is this could expand sideways, but the eventual break out is higher.  The longer term charts still support that outcome, but we could continue back and forth for a little longer!  Maybe until the debt ceiling issue is resolved. 

My Watch List:  I still don't have anything based on time and where Mr. Market lies.

From My Trading Desk:  No trades today and I'm still focused on waiting for the market to pick a direction and for better charts.  If you watched today's best performers among them were AAPL, GOOG, and BIDU.  So, big momentum stocks continue to be were a large portion of the action is!

Happy Trading.

J.D. Rosendahl, Rosey

Will This be a Problem? US Is at the Start of 500-Day Retail Recession: Analyst

The retail index is one of several things I'm watching as it relates to economic health and the over all health of the stock market and possibly another 2008.  Recently:  US Is at the Start of 500-Day Retail Recession: Analyst

The latest consumer confidence report aside, Americans are still apprehensive, especially about their jobs, and that fear is likely to weigh on consumer spending in the months ahead, according to one retail industry consultant.

Burt Flickinger, managing director of retail consultantcy Strategic Resource Group, said the US has just entered a 500-day retail recession, and before it’s over, the US will see weaker retail sales, more store closures and even additional retailers joining Borders in bankruptcy.

Helping to drive the trend is a weak labor market, Flickinger said.

Job growth has remained elusive, pushing the unemployment rate to 9.2 percent. Flickinger also expects more people will be joining the ranks of the unemployed as state and local governments make further cuts to their budgets.

The latest consumer confidence report from the Conference Board showed consumer attitudes perked up from the prior month, but it also captured growing fears about jobs. Those fears are likely to curtail spending, especially when you consider the large numbers of households that are living paycheck to paycheck.

Flickinger also cited the long-term unemployed who will stop receiving extended unemployment benefits this year as another contributing factor. Once the checks stop arriving, these people will have even less money than they do now.

A recent study by Moody's Analytics estimated that close to $2 of every $10 that went into American's wallets last year were payments like jobless benefits, food stamps, Social Security and disability. As the jobless benefits expire, about $37 billion will be drained from the nation's pocketbooks, according to Moody's.

Couple these trends with sky-rocketing inflation for food and clothing as well as for gasoline prices, which are on the rise again, and you quickly see just how pinched the consumer is.

“For the bottom one-fifth, the situation is so tragic, they can’t afford even dollar stores at the end of the month,” Flickinger said.
Earlier this year, consumers had begun to spend again because they began to believe the economy would get better, but now their minds have changed, he said.

Flickinger compares the current climate to that of the time period between 1973 and 1982.

He expects retail spending to slowly fall the rest of this year and into 2012, at which point the decline will become more dramatic.

The bright spot in his forecast is that he expects the retail industry to bounce back in between 2013 to 2014, and usher in a "retail renaissance."

That's because only the savviest of retailers will survive the downturn.

What's interesting about the emerging retail landscape as Flickinger sees it, is that it's not a simple equation of consumers feeling pressure and heading to discounters to stretch their dollars.

Consumers have gotten smarter than that. They're aggressively using coupons and stacking discounts and turning to the retailers where they can get the best deal, he said.

As an example, Flickinger cited Kohl's [KSS 56.00 0.06 (+0.11%) ], which offers numerous weekly coupons as well as other promotional programs such as Kohl's cash, which gives shoppers a coupon they can use at a later date based on the money they have already spent on a recent purchase.

Flickinger also expects that more consumers are looking to Target [TGT 50.64 -0.50 (-0.98%) ]rather than Wal-Mart Stores [WMT 53.62 -0.35 (-0.65%) ] because they have seen that they can sometimes save more money at Target. The problem is those consumers are also buying fewer products when they shop.

This was an observation that emerged from Pepsi's [PEP 64.1312 -0.2388 (-0.37%) ] earnings last week.

"The modest pickup in total consumer spending almost all US businesses saw earlier in the year has reversed in the past several months," said Pepsi CEO Indra Nooyi, during the company's conference call.

And Pepsi wasn't the only company making that observation.

Whirlpool [WHR 72.02 0.24 (+0.33%) ], the world's largest appliance maker said it expected industry-wide shipments to fall 1 to 2 percent in the US this year. Earlier this year, the company had expected shipments to rise 2 to 3 percent.

Even those selling necessities like food and medicine aren't safe. On Monday, Goldman Sachs lowered ratings for both Safeway [SWY 20.33 -0.17 (-0.83%) ] and Kroger [KR 25.00 0.18 (+0.73%) ] to neutral. In the wake of weak second-quarter earnings at Safeway last week, Goldman anticipates more tough times ahead as accelerating inflation hurts demand.

Flickinger bases his forecast on conversations with retailers and trends in their same-store sales. He expects this downturn began the week after the Fourth of July holiday.

This isn't the first time Flickinger has predicted a retail recession. Back in December 2007, he predicted a 700-day retail recession, which was later revised to a 1,000-day downturn.

 
I tend to agree with Flickinger and thought his comments are very well thought out.  He sites a number of on going issues, which reaffirms nothing has really changed on Main Street.

Add in muni budget resolutions this year and next year, and some day tax code changes from Uncle Sam trying to balance their own budget, and things on Main Street could get worse. 

Throw in aging Baby Boomers and their changing spending habits, and well, let's just say I think retail has head winds coming soon.

The wild card is jobless benefits!  Will Uncle Sam allow them to run out this time?  I won't belive it until I see it happen.  If so, that's a sizeable chunk of money. 


Here's what I'm look for as the clue it's beginning

$RLX:  Below is the weekly chart of the retail index.  You'll notice the index is traveling higher inside converging black trend lines, very much like the overall stock market, so the uptrend is still intact for now. 

What stands out to me the most is the low made in late 2008 and a higher low in March 2009, which was just the opposite of the stock market and delivered a nice divergence for the stock market indicating the 2009 low was a real bottom. 

The retail index might be a great leading indicator.  Therefore, if we are due a recession in retail, then retail stocks should lead that retail recession by moving lower first because the stock market is a discounting mechanism.  If the retail sector is going to move lower into a correction of size, that might lead a correction in the over all stock market.  That all seems logical to me.

So, what I'm looking for is a break down in price of the retail index.  Below the bottom black trend line, and more specifically the major support line in blue would indicate a correction of size in price, and maybe a leading indicator for the stock market in general.

This for the time being is something I'm watching because the retail index has yet to show any real signs of price weakness and it could easily push a little higher in it's topping process. 

The retail index is one of several indicators I'm watching as warning signs.

Like I said before, I tend to agree with Flickenger.  For me, there's just too big of a disconnect between retail spending in general and the economy on Main Street.

Hope all is well.

J.D. Rosendahl, Rosey

Stock Charts: Markets Churn on Debt Talks

Super busy week ahead of me, so I'm going to keep it very brief.

$SPX Daily:  The market continues to struggle inside support and resistance.  The market has a number of possible structures near term, which makes the view clouded from the trading perspective.  I still think it's likely that the sideways structure of the past few months will expand.  Price moving up the past 5 days is loosing steam, and I still think if we push higher that resistance will force the market to stall.

My Watch List:  Too busy to even look at charts today, but given the market, I'm probably not going to find much I like anyways.

From My Trading Desk:  Today we sold our CYN for a small gain.  It was a trade that wasn't materializing the way I thought, so I took a small gain.  I'm really in a holding pattern more than anything right now.  The market is challenging in this back and forth structure, so I want to keep my trading to a minimum until I see better structure and pricing reactions.

Happy Trading

J.D. Rosendahl, Rosey

Will High End Housing Take One for the Team: Mortgage Interest Deduction Big in Budget Play

The debt ceiling/budget talks continue to struggle, but the one item that seems likely to happen:  Mortgage Interest Deduction Big in Budget Play

It's not like the housing market needs any more headwinds, so here's the government potentially giving us another: The mortgage interest deduction is back in big play in the budget deal.

It never exactly came off the table, but the bigger the budget deal, the more likely the mortgage deduction will take a bigger hit.

Right now, home loan borrowers can deduct the amount of interest they pay on their mortgages from their taxable income. This goes for principal residences and second homes. The interest deduction is capped at the first million dollars of debt on the home. For home equity loans it's capped at $100,000 in debt.

The deduction costs the U.S. Treasury about $100 billion a year. There are proposals now to either reduce the cap to $500,000 and/or to eliminate the deduction on second homes. Eliminating the deduction on second homes would save about $15 billion, and reducing the cap to $500,000 would save another $15 billion, according to economist William Wheaton at MIT. 10.5 percent of existing home sales in June were of homes over $500,000 according to the Mortgage Bankers Association.

Then there's the idea from the President' bipartisan commission of turning the interest deduction into a 12 percent credit, limited to $500,000 in mortgage debt, only on primary residences. That could save the Treasury $65 billion.

Why this will be a popular choice?

1)  On a primary residence, you can deduct mortgage interest currently on loans up to $1 million.  Think about the size of VOTING population with a loan on their primary residence between $500,000 to $1 million.  That's a much smaller population than most Americans who's debt is well below the $500,000 threshold, so it doesn't impact the taxes paid by the voting majority.

2)  If you are part of the super rich, the adjustment in interest deduction write offs is minuscule compared to your overall income, so it probably doesn't impact you that much.  Of all the potential changes in tax code, this might be one you favor and in fact support!

The numbers, the size of population this doesn't impact and the number of very wealthy who influence politicians that this does not impact that great, far out ways the number of people this will impact directly. 

Therefore, it's a safe way for politicians to raise taxes by lowering the interest deduction for some.


High End Housing

A change in tax code of this nature will have an impact on values of high end homes and vacation homes.  It changes the affordability factor, which compresses values.  It also creates a great deal of uncertainty, which could sideline potential buyers.

In the effort of trying to help balance federal budgets will high end real estate take one for the team?

Eliminating tax deductions for a second home seems like a guarantee.  A reduction of interest that is tax deductible on a primary residence is gaining momentum and highly likely, and maybe more of to what degree.
Hope all is well,

J.D. Rosendahl, Rosey

Stock Charts: Market Closes the Week at Highs for the Week.

$SPX 15 Minute:  Price still looks like it's traveling in a channel, and the price structure still doesn't look finished.

$SPX 60 Minute:  Price resistance above.  I think if we get there price stalls and has some kind of correctional move.

$SPX Daily:  We have cluster resistance of price and the upper BB, with the BBs beginning to pinch.  I have a turning time frame of end of July or August.  What I'm looking for is price to stall maybe a little higher.  It could be a top or this sideways correction is expanding.  Fridays price bar indicates we should get a little more upside though.

$SPX Weekly:  This is the time frame that looks more bullish as the weekly MACD is trying to turn up.  If so, the longer time frames could trump shorter time frames.

My Watch List:  And I'm back to no charts.  This is hilarious, but it is what it is.

From My Trading Desk:  Friday we took a very nice and easy gain on MOS.

Next Week's Game Plan:  Next week might be watch and wait to see what price does if we get up to the resistance zone. 

Happy Trading.

J.D. Rosendahl, Rosey

Getting Much Closer! Jefferson County, Alabama Faces 80 Percent Chance Of Declaring Municipal Bankruptcy

In recent days, the County of Jefferson Alabama was trying to negotiate big debt resolutions to prevent muni bankruptcy:  Could the Dominos Start in Jefferson County Alabama?

Jefferson County might be the first Domino on the front of negotiating pre-bankruptcy bond losses for bond holders in an attempt to balance budgets and prevent bankruptcy.  If so, that could spark a trend of Dominos to fall in cities and counties nationwide.

The deadline for the answer to the debt talks nears closer with an answer pending next week:  Jefferson County, Alabama Faces 80 Percent Chance Of Declaring Municipal Bankruptcy

Alabama's troubled Jefferson County faces an 80 percent chance of declaring bankruptcy, one of its commissioners said on Thursday, as U.S. experts gathered to discuss the implications of a possible Chapter 9 filing.

Another commissioner said the county has yet to hear a response from creditors over its proposal that $1.3 billion be shaved off its crippling $3.2 billion sewer bond debt as part of a settlement to avoid what would be the largest municipal bankruptcy in U.S. history.

With a "standstill" period for talks with creditors that include JPMorgan Chase due to end on July 29, the county began a long-scheduled meeting to discuss pending litigation surrounding its debt and bankruptcy.

"We are real close to filing bankruptcy, probably at 80 percent," said Sandra Little Brown, one of five county commissioners.

Other commissioners and the state's governor have said bankruptcy remains a real option if talks with creditors fail but have still held out hopes for the talks success. Jefferson County is home to Birmingham, Alabama's largest city.

Default could rattle confidence in America's $2.9 trillion municipal bond market and heighten concern about the fiscal stability of some of the nearly 90,000 U.S. counties, cities and local governments that issue debt.

Jefferson County has hired the attorney, Kenneth Klee, who worked on the 1994 bankruptcy of Orange County, California, Brown told Reuters before heading into the meeting." He's very knowledgeable, the best in the country," she said. "I want to know what's the good, what's the bad about bankruptcy."

Orange County had declared Chapter 9 bankruptcy over failed investment strategies.

Commissioners have said it was unlikely that a decision on bankruptcy would be taken at Thursday's meeting.

"I have not heard from the creditors yet," said commissioner Joe Knight, referring to the county's settlement offer.

"I don't know where today's meeting is going to go. It's going to start out as informational. We will make the determination (about bankruptcy) at some point," Knight said.

Commissioners and John Young, the court-appointed financial manager of the county's sewer system, have repeatedly said that Chapter 9 bankruptcy would not free the county of its debt obligations.

Young argues he would be forced to raise sewer rates for consumers even if Jefferson County went into bankruptcy.

July 29th! 

That's when we should know if creditors are willing to take a hair cut on debt!  If they do, it could set a national trend of pre-bankruptcy negotiations for a lot of cities and counties.  If not, I think we see the 80% probability move to 100%. 


80% Chance!

For now, let's assume this is political pressure to get creditors to take a hit on debt.  No one really wants the muni BK route, but pressure publicly is being applied to the negotiation process.


Hiring Klee

A very good move.  Someone with solid muni BK back ground.  You only really hire a BK attorney if your very close to using bankruptcy, so the 80% is legitimate.  They are very close and the outcome could be in the hands of creditors and their response to a debt deal.


Bankruptcy

I say put Jefferson County into the muni BK.  Let's bring everyone with a stake to the BK table.  The tax payers, union employees and retirees, vendors, and debt holders.  Essentially, there should be no free lunch and everyone shares in the resolution.  The upside with muni BK is that is should force everyone at the same time to take less and quit whining about it.

The major problem we have right now across this country is that we cannot get everyone at the negotiating table at the same time AND to take cuts.  Muni BK in theory should force that to happen and hopefully force a viable long term solution.

The answer from creditors next week should be interesting!

Hope all is well.

J.D. Rosendahl, Rosey

Stock Charts: Markets Put Some Follow Through in Price

$SPX 15 Minute:  Market pushing higher inside of a channel.  And it doesn't look finished.

$SPX 60 Minute:  It seems likely we push to the top black line in the near future.  It will be interesting to see if the market will stall there or just above.

$SPX Daily:  If we get above the top black line we also have price resistance in blue.  That should stall the market, at least briefly.  The entire structure sideways could expand.  My two times frames for a potential top are end of July/August or December(ish).  If it's the later, this sideways structure could expand to buy more time.  Just a little something for the back of the head.

JNK:  The risk on trade indicator like suggested is moving higher with Mr. Market.  RSI has plenty of room for higher price.

IBM:  Nothing bearish on IBM at all.  As long as price stays above the black line we should keep pushing higher, which helps Mr. Market.

XLF:  The financials have bounced off gap support and created a little divergence on the MACD, which I talked about a couple days ago.  Now we have a 3 White Soldiers moving higher!  Will the financials join the party?  As much as I hate the group, the technicals are perking up.  If so, that could be very supportive for the market.  Above the down trend line and 200 day MA would be a very healthy signal.

SMH:  So far, it's failed to break down and is struck in No Man's Land.  If the markets have more strength, we should see this push above the 200 day MA and probably close the gap.  That doesn't make this one bullish, it would need to push above the top black line. 

$USD:  The dollar broke down today, which helped stocks.  The RSI has plenty of room to support a push into a new low.  Unless price reverses back above the black line, we should see lower pricing in the near future, and if so that should be market friendly.  If it pushes back above the black line it could be a wave C or 3 up.

My Watch List:  I have a couple of charts.

CYN:  I've looked at this one a couple times waiting for what looks like wave C to finish.  Just like the XLF, we have 3 White Soldiers moving higher.  All that's needed is a thrust above the down trend line.

MOS:  There's a little inverse H&S bottom structure but volume is not picking up.  That needs to change.  If it's a false break out, this could push to the down trend line in blue and the 200 day MA and fail.  Above that with good volume is a better sign.

From my trading Desk:  We bought a little CYN and MOS today.  Overall, still not trading that much.  Mr. Market still hasn't broken out of this trading range.  While today's burst is encouraging for the bullish case, there are still too many possibilities, which includes we stay range bound longer than everyone thinks.

Happy Trading

J.D. Rosendahl, Rosey

Setting the Trend? State receiver seeks Central Falls retiree cuts

Little Central Falls is on the cusp of setting the trend:  State receiver seeks Central Falls retiree cuts

CENTRAL FALLS, R.I.—The state-appointed receiver overseeing Central Falls said Tuesday he is in a "firefight" to right the city's finances and asked retired police officers and firefighters to accept voluntary -- and significant -- pension cuts to help avoid municipal bankruptcy.

Robert Flanders Jr. told retirees during a meeting at the high school that $2.5 million in pension and health benefit concessions are necessary "to prevent the city from going over a financial cliff."

"We're in a firefight here to make it to the finish line before we run out of cash," said Flanders, a retired state Supreme Court justice.

The city of 19,000 residents, about a 15-minute drive north of Providence, faces $80 million in unfunded pension and benefits obligations and an estimated $25 million in deficits over the next five years.

An annual reduction of $2.5 million is peanuts compared to the overall budget deficit and pension liabilities.  That means there will need to be others who lose, like bondholders, employees, and maybe tax payers via higher fees and taxes.  Otherwise, bankruptcy is just around the corner.

Under the plan proposed by Flanders, some retirees would see their pensions cut nearly in half. A public-safety employee who retires at age 55 with 30 years of service, for instance, currently gets a pension of just over $40,000. Under the receiver's proposal, the employee would receive $21,200.

No pension would be reduced by more than 50 percent, and anyone with a pension under $10,000 would not see a reduction, officials said.

Wage deflation alert:  Muni budget deficit resolution will require many to lose income in a variety ways.  For retirees, it's going to be a direct hit on annual income, and in cases like this, it could be huge!  That doesn't bode well for the economy nor real estate should this trend spread!

Without significant concessions from the retirees and other groups, including unions, Flanders said bankruptcy is a "much more likely" option, as the city needs to find a savings of $5 million to $6 million somehow.

Flanders has no authority, as receiver, to impose the cuts unilaterally. But Flanders urged the retirees to accept the proposal, warning that the changes -- or even more drastic ones -- could be imposed by a federal judge if the city goes into bankruptcy.

"Better to take something rather than nothing," he said. "...Those benefits are unaffordable for the city of Central Falls."

A judge would also have the power to void existing union contracts.

With no authority to enforce cuts as a receiver, chance are he gets nothing of significance done.  We could easily see retirees balk and we end up in front of the judge in bankruptcy.

Retirees will be asked to vote, by paper ballot, on whether they would accept the concessions. Flanders said they will receive information packets in the mail soon and should return them within 7 days.

A vote to approve the cuts would not necessarily have to be unanimous to go ahead with the plan, Flanders said.

"Obviously, if we don't get close we're not going to be able to pursue this option," he said.

Michael Long, who retired on a disability pension after 11 years with the police department, said during the question period that it seems like retirees are being asked to make a disproportionate sacrifice.

"Where is the fairness in this?" he said.

He said he would prefer to "take our chances" before a judge rather than accept the proposed cuts, prompting many retirees to stand and applaud.

Connie Doran, whose late husband Raymond was a firefighter in Central Falls for 33 years, said she hopes the pension benefit won't be cut.

"I hope I don't lose it," said Doran, 80, who now lives in South Attleboro, Mass. "I wouldn't be able to keep up the house."

She knows the city is trying to fix its financial woes but said, "They should have done that a long time ago."

Don't expect a yes vote!  There's no way people in mass are going to voluntarily give up that big a chunk of income, at least not voluntarily.  Otherwise those currently working union employees would have given up salaries and benefits.

If the receiver does end up filing for bankruptcy protection under Chapter 9, Flanders said he hopes the process will not drag out. Officials would expect to go into it with a plan of recovery.

"Our plan is to try to get in and out of this bankruptcy sooner rather than later," he said.

He would not speculate on the cost of a bankruptcy, though Vallejo, Calif., which filed for bankruptcy in 2008, spent millions during its proceeding.

Flanders would not predict the outcome of the retirees' vote.

"I'm not good at prognosticating," he said.

Bankruptcy is probably the right choice for Central Falls because the receiver is not going to get all the concessions from all the groups in time! 

The most interesting part of this, is the tough push to get retirees to take less.  In bankruptcy, it's likely they get less, but the question is would it be so severe, 50%? 

The big item is if the vote did turn out to be yes on behalf of retirees, we could see municipalities around the country attack retirees with similar proposals.

Pre-bankruptcy or in bankruptcy, pubic union retirees face less income at some point.

Hope all is well.

J.D. Rosendahl, Rosey

Stock Charts: No Follow Through!

It's been a long day at the office, so this one is going to be brief.

$SPX 15 minute:  On this time frame I'm showing again what the bullish case most likely looks like, which is an inverse H&S bottom with wave 2 down coming.  If so, that should happen in the very near future.

$SPX Daily:  The two most likely structures revolve around wave E.  If E is in, price should make the inverse H&S and then take off.  If E needs to expand, price should turn down and move lower.  A move lower from the neckline on the 15 minute time frame initially satisfies both views below, but the depth will tell us which one!

My Watch List:  Too busy today to screen charts, but I doubt I would have anything because the market is stuck in No Man's Land.  I probably sound like a broken record.

From My Trading Desk:  As expected, we sold BRCM for a gain.  We also sold our LUFK for a loss. 

I'm still not that excited about trading currently.  There's just not enough structure and direction to back up trading.  So, it's watch and wait for now.

Happy Trading.

J.D. Rosendahl, Rosey

Stock Charts: IBM Gaps Higher, Debt Talk Adds to Market Gains

$SPC 15 Minute:  Yesterday we had divergences on this time frame pointing to a bounce and boom, a big rally day for the market.  That being said, it really hasn't change the view of we are in No Man's Land.  Currently, there are numerous structures that could unfold in the coming few days, so it's still tough.  I've drawn the most obvious bullish view.  A little inverse H&S pattern.  The MACD is over bought, the view makes sense for a bullish possibility.  Again, there are still too many options, so we shouldn't get to far ahead of ourselves technically.

$SPX 60 Minute:  I said yesterday that we might have put a finish to wave E.  We need to be mindful that E could expand into a larger corrective abc too.  So, if wave E is in we should see continued strength almost immediately.  That could happen if earnings continue to be good like IBM and debt ceiling talks progress and remove the uncertainty about default from the stock market.  I think those could be the two catalysts for Mr. Market.  If, E needs to expand into a larger abc down, we almost have to reverse immediately, because today was wave b or most of it.

$SPX Daily:  Price lingering in No Man's Land on the daily.  We need the market to show some follow through soon for the bullish case that E has finished.  And a turn up in the MACD would be a nice touch too.

IBM:  Holy Cow!.  The last few times I wrote about IBM I said the corrective behavior the past several days did not look threatening.  When we see price run up and then flag like IBM, it's typically a good sign for continuation upward.  We got a lot of that today, as price gapped over trend resistance.  That is very bullish if it holds.  What's good for IBM is obviously good for Mr. Market.

AAPL:  Price continues to show strength and holding a sharp uptrend line.  What's good for AAPL is good for the NASDAQ.  Note:  AAPL is up large in after hours on a blow out earnings number.  It will be interesting to see if it holds because we are over bought on all time frames.

JNK:  If the markets are going higher, then I expect this to push into another high.

My Watch List:  Today was a big day for Mr. Market, but it needs follow through to support the bullish case, and maybe AAPL's announcement after the bell could be the catalyst.  What's frustrating is it's mostly Mo Mo stocks moving higher.  Not just IBM and AAPL, but GOOG (which looks great), PCLN, BIDU, NFLX, AMZN, retailers, etc.  I'm not a Mo Mo trader, so I tend to struggle when that's mostly what's working.  I do have a couple of ideas that we did buy today.

LUFK:  It looks like ABC down below the trend line.  It broke back above and then back tested it and now price is trying to mount a rally.  RSI has plenty of room to support higher price.

BRCM:  In a down channel with a big price move today.  This could easily bounce to the top channel line tomorrow.  A break above that is a solid trigger with the market pushing higher.  We bought a half position today. 

From My Trading Desk:  We scalped a gain on LUFK today, and towards the close we took a full long on it.  We sold our position in AEM and SRS for small losses on fractional positions, as they didn't pan out and I didn't want to hang onto them hoping something would work.  We also took a half long on BRCM.

As long as we are still inside the range of the wedge on the market, I'm going to keep trading light and minimal, it's just too frustrating trying to trade the ping pong movements of a wedge.  I'd rather wait for the market to show more commitment.

Also, chances are high we sell BRCM tomorrow if it pushes higher on the open but doesn't take out the top channel line.

Happy Trading.

J.D. Rosendahl, Rosey

Could the Dominos Start in Jefferson County Alabama?

Interesting developments are unfolding in Jefferson County Alabama.  A county that for all intended purposes is financially insolvent, yet desperately trying to avoid the dreaded bankruptcy. 

Recently:  Alabama county wants $1.3 billion debt reduction: report

ATLANTA (Reuters) - Alabama's Jefferson County wants creditors to wipe $1.3 billion from its bond debt as part of a settlement plan, a local newspaper said in a report that a senior county official said on Monday was broadly accurate.

Settlement talks this month with creditors, including JPMorgan Chase, are part of a bid to resolve a county financial crisis over a $3.2 billion sewer debt and avert what would be the largest municipal bankruptcy in U.S. history.

The Birmingham News reported on Sunday that the county also wanted creditors to accept single-digit annual rate increases for sewer system customers and to create a relief fund for struggling ratepayers.

One of the county's five commissioners said on Monday the story was broadly accurate.

"The numbers are pretty close," said County Commissioner Joe Knight. Other commissioners declined to comment.

Previously, commissioners have said they will not disclose details of their position while negotiations with creditors are ongoing, particularly during a 30-day "standstill" period for talks that is due to end July 29.

"It (a possible deal) is still much of a moving target. Of course we haven't heard back from the creditors. There are still a lot of stars to line up to get this deal done," Knight told Reuters.

"In order for a final resolution, the general fund and education warrants will have to be addressed as well," he said.

Under the plan, the county would have to borrow $2.135 billion to refinance the sewer debt, with $1.86 billion available to pay the existing debt and $213 million for a debt service reserve fund, the newspaper said.

The county, which includes the state's biggest city, Birmingham, would also have to create a separate public corporation to operate the sewer system and issue the refinancing debt.

It would also have to suspend or settle outstanding litigation, the newspaper said.

$1.3 billion is 40.6% of the current $3.2 billion bond debt.  If it's agreed upon, I expect a smaller number, but the County should start with a big number to negotiate into a final resolution of how much bondholders will lose.

Jefferson County, which has been in bankruptcy denial for the greater part of the past 1-3 years is still struggling to avoid the obvious.  Whether it's in bankruptcy or not, a bond deal has to be part of their financial solution, there's just no way they resolve their financials without wiping out some debt. 

For those who feel the rich need to pay more, well instead of higher taxes for the rich, bond losses for the rich could be the next best thing.  Whether they are or aren't, muni bond holders will be viewed as the weathly. 

What's far more interesting is the impact nationally this could have for municipalities.  Most political bodies are deathly afraid of going after unions, and the public would rather see rich bondholders take a loss first before cutting more people and services or raising taxes.

The question has to be:  if Jefferson County is successful in negotiating bond losses, will Jefferson County be the first Domino?  Will we see an out break of municipalities hitting up bondholders for losses to avoid the dreaded bankruptcy?  It's the equivalent of a short sale instead of a foreclosure!

Hope all is well.

J.D. Rosendahl, Rosey

Stock Charts: Markets Continue to be Corrective

$SPX 15 Minute:  We have divergences forming again on this time frame.  We might be due for a little bounce.

$SPX 60 Minute:  Today's price finally overlapped with wave (a) of D.  In this type of structure, we should expect that to happen before wave E has finished.

$SPX Daily:  If we are thinking about wave E it could have finished today, or maybe that's wave (a) of E and we need wave b and c.  The daily and weekly MACD's have yet to turn up so we should expect further expansion or weakness for now.  I still think we need to probe lower for E!

$SPX Weekly Non Log:  There's still plenty of room for further price declines to test the bottom wedge line, 50 week MA, and the big uptrend line.  Weekly MACD not giving any clues.

My Watch List:  The market is doing an excellent job of disguising itself in No Man's Land.  I'm still not that excited about trading or charts at the moment.

From My Trading Desk:  No trades.

Hope all is well

J.D. Rosendahl, Rosey