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Watch out below!

Stocks are taking a tumble today because of lower oil prices and a consumer price index report that it rose a slightly less than expected 0.1% in July. The likelihood that the fed will raise rates starting in September in my opinion has increased to 90%. Crude oil was trading down a $1.93, or 4.5% at $40.69. This is the lowest price in 6 ½ years and a break below thirty dollars would indicate my deflation worries are justified. The fed is in a quandary. On one hand it knows that eventually has to raise interest rates. On the other hand, with low a inflation rate, it is concerned about a deflationary economy. See our ’surprise deflation’ article above. The Dow’s low today is 17,282, which is a new recent low. The NASDAQ and Standard & Poor’s are the only major averages holding their own. The FTSE is down almost 2% today and closing on its low for the day down 1.9% at 6403. The DAX is similarly in new low ground down 2.14% for the day closing of the low of 10,682. The Chinese market is also closed at a new recent low down 1.3% for the day at 23,167. Also in a new recent low is the Russell 2000 down 1% for the day at 1205. Leadership is also starting to fade as Apple is only a couple of points away from making a new low and 115. New highs are diminishing and new lows are increasing. Technically, in my opinion, this market is ready for a big drop.

The bottom 49% of Americans continues to suffer, with all the increase in income going to the top 1%. According to the book, CAPITAL IN THE TWENTY-FIRST CENTURY, and Karl Marx’s Das Kapital, capitalism is headed for a big challenge. During the 1960s the Johnson administration brought poverty down 23% to 13%, with Medicare and the war on poverty leading the way. Today 16% of American children and 14% of Americans live in poverty. That’s 47 million people. That’s an income level of $19,000 per person or $24,000 per year per family. Capitalism and free market has given the United States greatest lifestyles in the world. However, with capitalism are winners and losers and that there are too many losers, without a safety net the system has a potential for folding. How many bars of soap, how many houses and how many cars can a multibillionaire own. We have a consumer oriented economy, where capital and labor now seem out of balance. The advantage of our capitalistic system is when these imbalances occur, dramatic shifts in the economy can’s cause a stock market crash, which will eventually lead to solutions. As Churchill’s famous of saying, ‘the Americans finally decide to do the right thing after they tried everything else’. It would be nice if Congress could address the problem first, but they don’t  seem ready to act. As a matter fact, forces in the Republican Party are leaning towards radical negative changes, such as the exportation of undocumented 11 million workers and 4 million US-born children, born of undocumented workers. It is estimated that this would cost the economy approximately $1 trillion. All the issues that were talked about in the Republican debate were noneconomic. At the center of discussion was the appeal of Obama care, undocumented immigrants, abortion rights, birth control,  voter registration and government regulation. The weakening of Dodd Frank, has the potential for being disastrous to our economy, as banks have become much larger than too big to fail and are more highly concentrated than they were 2008. What should have been discussed is the unregulated effect of Citizens United on our political system, the reinstatement of Glass Stegall Act, the limitations of derivative ownership by banks, to break the banks so that’ too big to fail’ is no longer a problem, capital improvements are made to our roads and infrastructure and a new war on poverty becomes initiated.

A recent article in the New York Times indicated that federal courts have said that the 2008 bailout of banks and AIG was not legal. If bailouts are not allowed, if another crash occurs, what is the alternative? 1929 type shake up?

KEEP AN EYE ON THE CHART BELOW FOR BREAK OUT POINTS BELOW RESISTANCE OR ABOVE SUPPORT AREAS. Particularly  watch for a breakout below  THEN 17,147/17,000, NASDAQ 4605/4545, S&P 500   1991/1973. That would change the Intermediate trend to DOWN

 Current  Dow NASDAQ S&P 500
17,4445 5,047 2,090
Short Term DOWN DOWN DOWN
Int. Term Down SIDEWAYS SIDEWAYS
Long Term UP UP UP
Forecasted Trend  DJIA NASDAQ S&P 500
Short Term Down Down Down
Int. Term Down Down Down
Long Term Sideways OR BearMarket? Sideways OR BearMarket? Sideways OR Bear Market?
Breakout Points DJIA NASDAQ S&P 500
Short Term Up (Resistance) 18,352 5,231 2,134
Short Term Down (Support) 17,568/17,147/17,000 4958/4605/4,545    2057/1,991/1973
Int. Term Up (Resistance) 18,974 See Fibonacci Projections above 5,157 2,486 See Fibonacci Projections above
Int. Term Down (Support)  15,855         /15,356 /14,688 4,166 3,986/3294 1,820 /1,560
Long Term Up (Resistance) 18,312 5,175 2,131
Long Term Down Fibonacci Support 50%12,000  62% 10,750     50%2,958  62% 2,555 50%1,390 62% 1,177
 10 yr Treasury 2.14% Gold 1,108 Oil 40.00 
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