Things Aren't so Rosy

On Monday I said here on the Tag, the 137.20 level is an important level for the SPY and a rally or decline hinges on the action at that level. Well, yesterday we got a test of the area on the open, and now today again, the market is testing that area. The possibility of a failure at the level is increasing, thus I have maintained my 70% short bias-10% long and 20% cash (roughly). The economic picture is just too bleak and there is no sense of "light at the end of the tunnel" with the daily drone of worse than expected economic reports. Of course there are several signs that a short term bottom is in place, many breadth indicators have been moving more and more to the bullish side, however-a bear market is a "fear" market and technicals have been and can be quickly unravelled in the face of negative surprises.

Again this morning the NYSE Advance/Decline line has moved into a leading downside divergence as it has several times this week. The Nasdaq A/D line, which has seemed to hold up "better" than the NYSE, is also in a leading downside negative divergence this am.

GDP came in this am at a surprisingly low .6%, expectations were between .7 and .8% PCE inflation also came in at a higher number than the Fed is comfortable with-inflationary pressures are building. Housing also saw reports that were worse than expected. And now add to that Jobless claims coming in higher than expected and Freddy Mac posting a very surprisingly bad report. There seems to be little out there for the bulls to grab hold of. My opinion has been and remains, we are in a countetrend correction (not rally). I feel the path of least resistance continues to be down, despite efforts to play up the bright spots by some (more on that in a later post).

The main point of this post is that GDP is the measure by which we define a recession, specifically negative GDP. At .6% and trending lower, the numbers seem to point to the inevitability of a recession. Forget the numbers and the reports and simply look around you. What is it like at your work? Are people afraid for their jobs? How are you and your friends doing with your monthly bills, do you find yourself decreasing your paid services like Cable/Satellite TV, your phone service, have you been yelling at the kids to "shut off the lights?". Are you concerned more than usual about your future? These are the real trends that are difficult to measure with cold, hard numbers and in my neck of the woods, the trends are bad and getting worse.

There will be a time when things seem worse than imaginable and then we'll probably be near a market bottom, but I don't think we are there yet.

All this is just opinion-let the market be your guide, and be careful out there.