Good article from Business Insider where Ethan Harris of BOA says he’s very concerned about the market due to the on going Eurozone problems and the pending fiscal cliff in Q4

The worst of the US fiscal crisis also lies  ahead. Note that in the uncertainty shock literature, the impact of the shock  grows exponentially as the day of reckoning approaches. The cliff is slowly  working its way into corporate thinking. The real test will come in the fourth  quarter when the cliff will be just months away and the incentive to delay  spending and investment decisions will peak. The timing is tough, but we  would expect some weakening in the September data and very soft numbers in the  October to January period. We are keeping a close eye on corporate  commentary, confidence surveys, indicators of hiring and capital goods  orders.

Economist Michael Hanson points out an  interesting circular relationship between the stock market and Fed policy:

Risk of a sell-off is high

Economist Michael Hanson points out an  interesting circular relationship between the stock market and Fed policy.  There are some who believe the Fed will not launch QE3 so long as stock prices  remain high, yet the stock market is high because it anticipates QE3. Should the  Fed disappoint at the September 12-13 FOMC meeting, the risk of a stock sell-off  is high. S&P 500 support on a correction is in the 1360-1325 area.  Additional support is at 1300-1250. Attention will be on the Jackson Hole  symposium next week to get a feel for the Fed’s tone

Our strategists see an unusually high  number of macro catalysts over the next 3-6 months that could take markets  lower. We expect economic growth to disappoint in the second half of the year in  anticipation of the fiscal cliff. This would exacerbate any slowdown from the  deepening recession in Europe and decelerating growth in emerging markets. There  is also the ongoing tension in the Middle East, the potential for a US credit  downgrade and accelerating downward analyst estimate revisions. To top it off,  September is seasonally the weakest month of the year for stock price  returns.

The BofA strategists conclude that with the  VIX at record low levels, those looking to hedge against a correction should  buy put options on stocks while they are cheap, echoing a message several Wall  Street analysts have relayed on television and in client notes over the past  week.

David  Kostin Goldman  Sachs Chief U.S. Equity Srategist ,writes to clients that “portfolio managers  have been swayed by”hope over experience”

Assigning a P/E multiple to various ‘fiscal  cliff’ and earnings scenarios is difficult because ultimately we expect Congress  will address the situation. But investors must confront the risk they may not  act until the final hour. Exhibit 4 contains a matrix of potential  year-end 2012 S&P 500 index levels based on different ‘fiscal cliff’ resolutions and multiples. Our 1250 target reflects our ‘fiscal cliff’ assumption and a P/E slightly below 12x. Full expiration with P/E of 12x equals  1120 (-21%). A 14x P/E and full extension implies 1540 (+9%), but the two  outcomes are not equally likely in our view.

 

 

I’ve had some success in picking spreads in CFB – Last year I had 56% accuracy based on a must pick contest of 10 games per week  against the spread

I hit 70% every week in the first 3 weeks which I think are far and away the easiest to hit as the casinos are still feeling out teams.

Here’s my Choices along with lines for other games

Alabama – 12.5 @ Michigan

Nebraska-19.5 vs. Southern Miss

Game 9 West Virginia -24.5 vs. Marshall

Game 12 Penn State -6.5 vs U of Ohio

Game 15 Oklahoma -31.5 @ UTEP

Game 21 Oregon-35.5 vs. Arkansas State

Game 25 Georgia -37.5 vs. Buffalo

Game 26 LSU -43.5 vs North Texas

Investigators on Saturday were trying to piece together what caused Jeffrey Johnson, a T-shirt designer, to ambush Steve Ercolino, an apparel company vice-president, a day earlier outside the Manhattan offices of the company where they once were colleagues.

Police said Johnson hid behind a car and then killed Ercolino with five gunshots as he arrived for work. Johnson then was shot by two police officers who confronted him on a busy sidewalk.

Video released from NYPD shows their confrontation with  Johnson before they eventually shot and killed him.  The video shows what Police Commissioner Ray Kelly stated earlier — that the suspect pulled his handgun from the bag and pointed it at officers before the deadly conclusion to the situation. August 24 2012

An article from the New York Times Thursday, says there is a tremendous glut of inventory.

As predicted we had another down day on the SP 500.

What we didn’t get was an opening bump in order to get a better short position

Since we broke through R1 – I’m confident the target bottom of the channel / 50 DMA around 1368 will be reached

For those that don’t trade the e mini futures contracts, you can either play SPY or SDS the 2x short ETF.

My choice would be to short SSO the 2x Bull ETF, but no shares seem to be available.

The corresponding trade on SDS would be a Buy @ or near 14.51, with a stop loss at 14.30 and a target price around 15.41

That trade would represent 6.2% gain with 1.4% risk

We printed a doji today with a lower high and lower low. We did see a bounce off the R1 1405 area I mentioned yesterday.

My guess is tomorrow the Bulls will try to run it back up to the top of the channel early. My inclination is to short that as I don’t think they have the firepower to break through R2 at 1431. I also see MACD rolling over as well as declining RSI

A stop will be placed 1433 in case I am wrong

Of course just as finish my Bullish Longer Term assessment of the SPX – We print a shooting star which could (should) signal a reversal down in the current channel.

I thought we would have seen this around Aug 6 based on the time frames since the June 4 Low.

If you’re playing this short the R1 at 1405 is a likely target and now support – Likewise this is a good place to buy if you believe it’s going higher.

Should that fail then the pivot and 50 DMA converge almost exactly at 1365.

I find it very difficult not to be a Bear now –

For reasons like this:

• Economy / unemployment
• Overall mediocre earnings
• No QE3 is coming
• Greece default still looming
• Fiscal cliff in 2012

Yet the market continues to move higher. and as Jesse Livemore said so succinctly:

“They say there are two sides to everything. But there is only one side to the  stock market; and it is not the bull side or the bear side, but the right side”

In this case though Price is the ultimate arbiter and price tells us the market is going higher.

Here’s a three year weekly chart of S&P 500. The Andrews Fork (blue), Channel (black) and trend from the June 4 bottom (green) all point one direction – up. That it broke into the upper half of the Andrews Fork off the June lows was the final decision point for me.

Even the Euro appears to be breaking out of its consolidation pattern:

When price tells me it’s time to sell – I’ll listen, But for now it’s the Bulls Market

From Carl Swenlin over at Decisionpoint.com

Decision Point keeps track of this percentage for the S&P 500 Index, and it indicates that there are fewer stocks pushing the SPX to the current highs than there were at the April highs. Also, we can see that the percentage in April was lower than it was at the 2011 highs.

 

Taking 2011 by itself, we can see the rapidly erroding percentage at the July 2011 tops just before the sharp decline in July and August.

Of course, we must note that as of this writing both price and the indicator are making new highs since the June bottom, so it is possible for the appearance of weakness to be remedied if the rally continues.

Conclusion: The percentage of stocks above their 200-EMA shows fewer stocks participating in the advance than there were at the 2011 top and the March 2012 top. This is not a healthy condition, and will probably result in a correction fairly soon; however, the market needs to stop going up before it can go down.

This should surprise no one – Greece, Spain & Portugal according to Paul Donovan at UBS.

Real disposable income grew the most between 2000 and 2010 in those peripheral countries.

Donovan and his team at UBS have looked at eleven of the larger eurozone countries, breaking down income levels in deciles to get an insight into how income inequality has changed over the decade within countries and between countries.

To do this more accurately, they sought to identify income-specific inflation rates because headline figures only offered average rates, reflecting average spending patterns. The latter are not much use if you’re trying to understand income growth across income levels as a country’s high-spenders have a disproportionate impact on its inflation rate:

This matters because the last two decades have seen a growth in inflation inequality. Essentially, it is more expensive to be poor, because the goods and services purchased by lower income households have tended to rise in price by more than the goods and services purchased by higher income households. Lower income households tend to have a higher concentration of food, energy and housing in their consumer baskets. This is not a Euro-specific phenomenon, but something that has been observed across industrialised countries since the mid 1990s.

the “peripheral” countries tended to have higher overall levels of income growth, and all sections of their society enjoyed growing incomes. So, everyone got richer. (The authors stress that the data set ends in 2010, so the impact of the more recent austerity measures is excluded.)

Germany, Ireland, most of Italy and the French middle class all experience a decline in their standards of living. In most of these countries, the highest income groups do relatively well.

What stand out are Greece, Portugal and Spain. These economies have benefited from increased standards of living under the Euro (at least, until 2010), as nominal incomes have overcome inflation pressures. There has also been a concentration on improving the lot of the lower income groups in these societies.

This chart shows Eurozone by country. The income classes start lowest to the left in each country’s section