The major stock indexes took in on the chin today as concerns regarding excessive sovereign debt rifled through Europe. Volume was very heavy on the large losses here and abroad.
Officially, the Dow Industrials fell 2.6% on NYSE volume of 6.9 billion shares, while the NASDAQ dropped 3.0% on 2.8 billion. The leadership profile has turned negative, with 96 stocks making new highs versus 117 making new lows.
The short term momentum oscillators remain negative, confirming the bearish stance of the AlphaKing Trading Indicator. We have no new trades at this time, as we await a better entry opportunity to add to our short positions and inverse ETFs.
In our forecast issue published on 12/18 last year we wrote in the #3 position of expectations: “2010 should be the year of currency crises, with the British Pound the crown jewel of pending disasters, with the EURO not far behind in the race to the bottom.”
Lithuania, Spain, Greece, and Portugal were the currencies most in focus today, though Britain and the larger EURO region are not too far behind in potential disasters still to come. If you can’t pay your bills, and you live on debt and meet those debt payments with more debt, then expect bad things to happen.
Since these countries can print money at will, none should default, though bad things will manifest themselves in the form of falling stocks and currencies in such overleveraged countries, as well as deeper recessions and higher unemployment.
Good things come from keeping debt manageable and living within your means. Unfortunately it is tough to find a country that fits such nirvana fundamentals. The US itself is currently not in too bad a shape in that regards, though that can change very quickly going forward as deficits continue to skyrocket as tax inflows plummets, with the future looking even grimmer due to political promises made not backed up with money, such as social security and medicare.
So while the US dollar should do well in the current environment, we are destined to suffer the same fate as our European neighbors eventually. It’s simply a question of who wins the race to the bottom, rather than who is in good shape and who is in bad, for they are all in terrible fiscal shape.
If the stock market falls another 2% or so then we are headed to test the 200 day moving averages in a hurry - potentially in crash mode - though the possibility does remain for another counter-trend rally to test the 50 day moving averages before the collapse begins for real. The reaction to tomorrow’s jobs report should answer that question.
We will continue to hold ½ a position short in our portfolios, though we would become very aggressive on the short side on any move closer to those 50 day moving averages.
401K investors should be fully invested in a money market fund.
The Index portfolio is ¼ invested in the inverse ETF QID, which gives us a 50% exposure to the short side.
Kevin Wilde, Chief Trading Strategist AlphaKing.com.
