Panicky peddling predominating? Nobody accepts that possibility. However, a lack of buying of any significance at any point where they tried to bump-up stocks, gives a hint of the reticence of any notable trader to jump into the fray on the buy-side, and in our opinion that alone validates not only our assessment that those looking for only a 3-5% pullback were unrealistic (as we said in advance they would be), but that those still talking about how high the market goes must have missed the last two weeks (as you know internal market behavior topped prior to the actual high of the Averages).

In the very short-run; besides suggesting any buying pulse would be short-lived if at all (and wasn’t at all due to the weekly jobless claims; which aren’t surprising); we’d called all day for a 150-200 point Dow decline and break of the Daily moving Average prior to a rebound to it and then a further breakdown. That is what Thursday brought.

(charts courtesy DecisionPoint)

Daily action . . . on Friday should be potentially hard down if jobless data worsens as it should; and then they again ‘may’ try to rebound the market and run-in shorts prior to taking it lower. By no means should there be talk of ‘legging-into’ the market’s drop at this point. There are no real bargains in the stronger big-caps, and there’s more to come in terms of downside behavior overall. It may be choppy day-to-day; but lower.

Momentum and technicals (that was my point of the warnings of the past week) were allowing nominally persistent efforts to hold or even rally while fundamentals clearly it was noted, suggested the market was about as overdone on the upside recently as it was on the downside back when we called for an intermediate low back in late Feb. / early March. There’s a continual debate about where to put money; rather than grasp that very little has been done to focus on redressing the debt issues aside stabilizing the banking system, and some nominal efforts aimed elsewhere (at enormous costs). There will be new opportunities to buy equities (very good ones); but this is that, yet.

I am including the pre-close video as it outlines a bit of where we may likely go; and a buy-and-hold approach here is ludicrous; although that is not to say we’d sell each or every position bought attractively last November or late February/early March. But we do not have the challenge those who chased the rally do; as we did not buy into all of the arguments for perpetuating the rally. Au contraire; we were suspicious of it lately in particular, believing that once it broke, players would be more interested in saving gains already achieved, rather than trying to be heroic about buying even more high priced merchandize. Plus only a small fraction of the list really moved; which for quite awhile is why we’ve said the ‘advertised’ stocks are rotating trying to hold the market, as if they fear what happens when they let go. Today was an example of letting go.

Just a brief summary of key points and then tonight’s video(s). No need for arguing a point tonight; as the time to argue a position was before the market reversed not later of course. I realize everyone else is debating selling to protect versus buying; not our concern; we’re simply looking forward to evaluating the phases of the overall decline (ideally not a mere ‘correction’), and then eventually reentering on the buy side again. For now all rallies should be false and abortive as prevailing declining action expands over time..not every hour or every day, but overall until prices become more realistic.

Simply put; whether you accept the most optimistic, pessimistic or middle-of-the-road assessment of where things stand; we should be in the development process of very necessary corrective action, which is actually desirable even if you are very bullish for that matter. In fact, too many longs (bullish or just swept along) are frightened to see this go below the daily moving average (as I note in the video) because they’re afraid a lot of managers will simply exit profitable positions to lock-in gains made this year. I think that’s actually a realistic concern, but also believe whether just pause to refresh, or something nastier, it’s a part of normal functionality of the market; thus desirable.

I think it’s worth emphasizing that ‘technicals’ aren’t everything, because the level of economic activity, and availability (or in this case tightness) of credit means a greater deal frankly; after you’ve had an extreme move from overly-done on the downside to overly-done on the upside. Statistics on everything from retail, to housing, to shipping and even restaurants (fewer but even those not doing so well) back-up such concern.

Certainly, when markets are frozen with fear like last February, some restoration is a very likely outcome, rather than perpetual decline such as the superbears anticipated just as now when the majority look at opportunity (and that’s great), but act as if lack of credit availability, jobs, stable housing, and irresponsible trade policies don’t matter that too is the hallmark of the permabulls, such as dominated with unrealistic thinking even when the nuances of the collapse were evident during 2007 and into 2008. You do remember the Golilocks thinking; which was unsustainable and irresponsible then; and is trying to resurface now; though they are tempered by lack of valuation criteria.

I also think one should recognize that we can become more optimistic about the U.S. ability to recover slowly; but that doesn’t automatically correlate to market movement, especially when the level of Senior Average prices has discounted the ‘best cases’. I know there are those who argue that multiples are not unreasonable based on prior behavior; but actually the opposite is true if you factor-out the preceding decade plus.

There remains some moral hazard, but on that score we’re encouraged by monetary authority comments of late; with several Fed heads inferring a clamping-down of easy money before the politicians get carried away more (can’t say ‘too’ carried away as of course they already did that). And yes, I continue to believe that much of what needs to be done can be implemented by improvements to the tax code, not by stimulus for any particular purpose or to accommodate any special interest. Consider Caliifornia: if by any miracle they pass the bipartisan Bill that has emerged, it would go quite far towards reforming that state’s system, and attracting new business development. It’s about time someone came forth to note that 144,000 of the 24,000,000 population of that state has carried the burden of over half the total tax revenue paid. That’s worse by far than the Federal Income Tax proportions, and is entirely unsustainable. If they can fix it in California, that can become a model for reform across much of the nation.

What we are trying to do is provide analytical clarity in a sea of variables; tough task I realize, and not one beholden to certainty. It comes down to reform; responsible and necessary credit easing; conservative monetary or taxation policies; and transparent perspectives on what Government is up to, rather than what they want us to hear. It’s easily summed up by politicians not asking what we can do for them (the President or anyone else); but asking what they (and we) can do for America. And that requires an immediate departure from chastising normal Americans sick or tired of indebtedness and redistribution, from being called a ‘mob’ by certain politicians; and instead those in power realizing who put them there, and who can recall them if they don’t get real. I think Washington has a quotient (including the President) of people with good intent tackling enormous problems and challenges; some of which may surface quite soon.

The ‘battle against borrowed money’ . . . is, as I noted in weekend comments, the most bullish aspect (in the long-run) to thwart this projected decline becoming more than a very healthy (if slightly overdue) retracement of excess advances. When these functionaries realize that the majority of recovery is through (as often noted) less from ‘stimulus’, and more from the ingenuity and stamina of the American people and even small business struggling to persevere in a challenging environment, than from all the Federal efforts and interventions; we will really be on the road to renewed prosperity.

In the meantime, valuations are still excessive (hardly begun to correct really); and if we do see sobering contractions in taxpayer or borrowed funding of stabilization from here on, it still won’t counteract the excesses in price and slowness of growth, that is not merely our opinion, but borne out by not only the facts, but by Fed statements as well. What that comes down to is what we’ve already contended: prices got ahead of themselves on the downside in late February and early March (hence rebound call at the time); and ahead of themselves on the upside more recently (hence correction as a call, irrespective of day-to-day dog-fighting in the trenches until this gets going in an earnest form). We are simply saying here that if it becomes visible that Government’s going to contract leveraging (which is what got us into trouble largely in the first place of course), then we can look forward to any sizeable decline (not 3-5% but likely lots more) as being a welcoming opportunity for additional nibbling once again as was the case last November for technology, and in late Feb./early March for much of the list. It seems to me the case for valid extensions now, from current price levels, is moot.

I have argued for months that consumers and business are ‘adapting’ to the overall new economy; which dropped to bedrock levels as we termed it, unlikely to be broken down. I have also contended that there is a new wave of foreclosures and defaults on the way, and continue to believe that is coming; irrespective of cheerleading against it (one member seems to think this is only about collective fear or lack of it, and while I do agree when it comes to panic phases like a year ago; I demur when it comes to an obvious collision, of which there are several on the way). One is Option ARMS; then of course you have commercial defaults, and numerous other issues to contend with.

I am definitely not trying to focus on what makes this ‘half-empty’ aside contrasting at least some of the unrealistic views in the media. I am being candid when I say that in my opinion I don’t see this having an enormous downside disaster like that additional wave in the 1930’s, and said so already for one simple reason: the banks are open. A look at the debt burden, however, says this is more complex than the ‘30’s ever were; thus while it’s not so simple as saying ‘we won’t have an 80% decline’ we likely might have nevertheless a substantial hit to the market, the magnitude of which is variable. I need not mention the exogenous event risk out there too; because you know it.

The global economic realignment is gaining some momentum (grudgingly) but that’s a process too that takes lots of time. As for the ‘only fear matters’, I must respectfully counter that absolute levels of unemployment (real and shadow), as well as income and the debt and derivatives burden, are pertinent and not relieved by mere optimism among the people. Maybe many have not grappled with the extent of the obligations, and the ramifications thereof. All we have done is question non-transparent policies, and tried to put a realistic tone on what’s ongoing, while looking for eventual salvation from this forecast ‘epic debacle’, that almost we alone identified over 2 ½ years ago.

To wit: if there’s no problem now other than behavioral psychology, while are banks balance sheets still too geared for the comfort of regulators or their own managers? And of course consumer indebtedness remains too high relative to forward income; and there’s sign of job engines sufficient (yet) to turn that around instantaneously. Of course we all want to work towards that goal; but again, it’s a process. In such a time the market (historically too) cannot simply ‘slap on’ a forward multiple as if we were going back to a solution of solving debt with more debt, but without rising household incomes, and stable real estate prices; at least at can’t do that and long maintain it.

Further the public debt ‘bomb’ is still out there. We have periodically noted how that has grown rather than shrunk, with tax mileages increased, rather than reduced, so as to give taxing authorities a leverage to milk citizens for more rather than budget trimming; though finally some of these taxing units are coming more into line. That’s also a painfully slow process, and it triggers concern about future debt dynamics too.

In sum; before we go to tonight’s video (and a summary of comments that I rarely do adjustments too) I am simply suggesting that after such a stoic market advance that’s already under some distribution pressures, we incorporate into all the optimistic talk a bit of sobriety related to absolute levels of economic and market data; not ‘adjusted’ or seasonal variations, or comparisons that look good year-over-year but otherwise in fact do not accurately reflect continued burdens that most businesses operate under.

Conclusion: stabilization efforts notwithstanding; overall recession and deleveraging conditions will prevail (not may prevail) through this year, and probably into next year as well. Intervening rallies in markets will occur (some fairly wild), of limited duration. In event other developments unfold that could truly change prospects; we’ll evaluate.

Bottom line: continuing characteristics; include (consolidated) the following bullet points:

MarketCast (intraday analysis & embedded Daily Briefing audio-video). . . remarks forecast substantive failures by banks or other areas; following breakdown action, as we've outlined. Remember; back in early 2007 we denied the 'liquidity' momentum as a canard; believing housing only the first of the asset bubbles to deflate. We outlined structured investment vehicle failures; banking issues, confluence of asset deflations, and more; continuing with interruptions per projecting long ago: 'a perfect storm'.

As the debt bubbles continue to deflate, alternating tradable moves continue from a trading perspective. Against that backdrop retaining a macro (adjusted) Sept. S&P 1600 +/- short irrespective of interim oscillations. Technical analysis via video follows.

First, the world’s not coming to an end; b) but it remains destabilized; c) there are other irons in this fire yet to fall, and we’ll see what they ignite; d) there are a lot of defaults and foreclosures ahead (plus commercial property); but e) the edge off a horror show outcome came off for some months as was targeted for the early March low; so f) the shock to the system will be, should it reignite in weeks ahead (on the downside) with g) questions as to whether the patient is actually off of life-support; not debatable (just interventional financial life support pure and simple; that may be welcomed, but lets call all actions by Washington what they are, rather than what we may ‘wish’ them to be). It’s a world we now live in.

Pre-close MarketCast (for intraday and overall analysis)

Bits & Bytes . . . provide investors ideas in a few stocks, often special-situations, but also covers an assortment of technology issues (needed for assessment of general factors in tech overall, or as compelling developments call for) that are key movers in the NDX, SOX or S&P, plus ideas ingerletter.com thinks might merit further reflection. (Individual stock comments generally are provided in the video overviews only; once in awhile I'll have some thoughts here, where something's particularly emphasized or of technical nature necessitating some discussion. Increasingly most all is via video.)

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Comments are interpretative speculative postulations provided 'as is with all faults' and all risks with no assurance about future performance of anything (markets or stocks) in any way whatsoever. Personal necessity, irrespective of opinions, may require buys or sells deemed necessary, without prior notice.

In summary . . events continue reminding us of risks Allied fighting forces face, given continued attacks on free peoples, by elements including organized terrorist forces in various countries. A world addressing terror threats continues, as domestic issues absorb us more while as we must focus on Middle East and World War III avoidance.

(charts courtesy DecisionPoint)

McClellan Oscillator finds NYSE 'Mac' extended, with intervening bull-bear shuffles; overall bias transitioning from ‘crash’ mode to something else, as noted. Reflex rallies allow 'risk off-loading' tactics into strength now. Still too much comparison with last ten years; slower growth prospects post-bailouts makes it realistic that price multiples associated with earlier market eras predominate; not higher ranges many anticipate.

(charts courtesy DecisionPoint)

Issues continue including oil (as was too low vs. too high earlier in the year); terror; China; Pakistan; all the Middle East, Europe; dubious NY commercial property as well as lots of non-housing entities; and pandemic risk. Noted for a year: international dependencies, as outcroppings of extremist globalism; from which there is a veiled retrenching already. More of that (a trend towards ‘insourcing’) may be very helpful.

Twenty-nine months ago I commenced projecting an 'accident waiting to happen'; affirmed historically after long-duration periods of free money (Gilded Age mentality). Now a market struggles with periodic rebounds as this economy tries to restructure.

Though enormous efforts have avoided systemic disaster on the banking front; there is no equivalent rescue of the overall economy besides perception; nor restoration of engines for sustainable growth. People are adjusting to lower expectations; which will never be a favored approach to American life. Actually we don’t see it as permanently alternating the future; but we still have major adjustments to work-through. That’s the reason we warn about chasing rallies; not to mention major ‘commercial’ adjustments as are ongoing. And as I’ve said; there are fairly visible new storm clouds gathering.