SAT MORNING POST "ARE WE BUILDING A RIGHT SHOULDER?"

*click to enlarge There is ample evidence to suggest this is exactly what may be happening as we enter our 14 month plus of rally. Very sharp mirroring the sharp decline from 2008 we are both nearing the levels of the Lehman collapse and the left shoulder area (daily up to around 11,600 ish)

Sloping declining volume is typical of right shoulder, even more bearish is the downward slope to neckline.

Intervention into the natural selection and healing process have short term positive momentum, but in the end as we have already witnessed over the last 10 years, does not bring about lasting sustainable recovery but only brief periods of mania followed by the BUST.

Along the way severe damage is done to the functional economy as money and resources are DIVERTED AWAY from productive means. How productive is it that the HUGE BANKS are playing the stock market for profits instead of normal lending?

How stable has our economy been since we shipped our manufacturing base overseas? a 70% Consumer economy and services which are now also being sent overseas? Inida, Pakistan, China and now the Phillipenes are doing service jobs we used to do here at a FRACTION of cost.

Our GOVERNMENT continues to gorge itself on debt and grow and consume resources meant for private sector.

You will not see another ascent this sharp on this chart, yet the V SHAPED scenario does not have the data to back it up. Small imporvements are sold as continuing proof we have enterred into another period of PROSPERITY.....a rise from 440,000 new claims 2 weeks ago to "unexpected" 484,000 was bearly mentioned but this week when "CLAIMS FELL SHARPLY" to 448,000 that ws plastered everwhere and touted as proff of recovery when it didn't even reach levels of 2 weeks ago!!!!!!!!!!!!

And ONE MILLION CENSUS workers have been added over the ensuing months, imagine claims without these "temp" jobS!!!

Consumer spending has been aided by tax cuts, stimulus, and mortgage payment cessation and abatement.

BANKS are still allowed to carry CDO's MBS's on their books or off at near FACE VALUE making their "EARNINGS" report BOGUS IMHO .....what is a gain if the losses are not subtracted??????????????

THE EARNINGS MIRACLE being posted is a fraud IMHO...and the FRAUD is being bought.....hasn't ANYONE learned their lessons?

I notice 2 things being gooosed by the FED and GOV, OIL and STOCKS.

How did GM pay back gov in less than ONE YEAR its $6 B??? they aren't even profitabLE!!!?? DID they make $6B in just 9 months?????

NO financial reform.

ONE PERSON INDICTED?

TAXES RISING

Foreclosed SHADOW INVENTORY HUGE and unreported. NO SHARP housing recovery as depicted in stock market or real housing data.

State governements continue to divert stimulus cash to fill holes in budgets.

Continued CONTRACTION of outstanding bank loans and consumer credit demand is reminiscent of bear market K winter, not SPRINGTIME BULL MKT.

Object of bear market rallies is to rekindle hope and lure in more for pain to follow.....good chance this one has done its job.

This H and S formation CAN BE NEGATED, but it BEARS watching, and IMHO as we near it, as the movement of stocks appears to me to come from MOMO and not underlying value...as the VOLUME associated on a monthly basis is troubling and not indicative of you normal bull market cycles......caution would be warranted especially for NEW PURCHASES.

BUY LOW.....SELL HIGH

IN 2001 a FED funds rate of 1% was kept there MUCH longer than needed, and those in charge now act that they had NO FING CLUE A HOUSING DEBT BUBBLE WAS FORMING?????????????????????????????

They also have said rather form a bubble than finally pay the piper. EACH ONE is bigger than previous.

IN 2007-2008 never seen before tools were used by FED and a ZERO 0% FED FUNDS rate was formed and we are STILL AT 0% even after 5,000 (nearly so) DOW points have been added!!!
SO the economy cannot function w/o normallizing rates? yet stock market we are told is SCREAMING V-SHAPED RECOVERY????? does this add up for you?

Have any of these policies normallized bank lending? JOB CREATION? RECORD FINANCIAL BONUSES? (YES)

Have the crimes and losses of the financial sector been foisted onto the AMERICAN PEOPLE?
(YES!!!)
BIG BANKS TO FAIL ARE NOW TOO BIGGER TO FAIL?

SECULAR BEAR MARKETS HAVE ALWAYS BOTTOMED with SPX PE ratios in single digits and YIELDS near 6% currently we have near 20 PE and 1.87% YIELDS.....ignore hsitory?

Lastly:
"For the previous year, the federal government has tried to revive home buying by driving down mortgage rates and providing tax credits. Now that the housing market is stabilizing, the government is pulling out. The federal support for mortgage rates, is set to end in two months. and the tax credit deadline is April 30th."

We have gov support ending for housing market, the pathetic blip we just saw no doubt many getting in front of this. We have FED ending certain programs, banks have been BIG buyers of treasuries (RECORD RISE IN MKT YET BOND YIELD CONTINUES TO FALL BELOW 4% !!)

No doubt this should raise the cost of buying a home and we could see a renewed decline in home sales and price.....a dying patient taken off resperator....

ALt A loans now resetting taking payments higher and biting consumers not yet bitten? Pressure on banks from Commercial Real Estate defaults.....after markets relentless 14 month 75% advance.....now bargains galore and best time to buy?

Consumer and small business confidence is WELL BELOW previous recoveries from crisis....yet mirror that with record vault of stock prices.......I COULD BE DEAD WRONG....but I lay out my thought process and it brings me to here.....so I prefer to be cautious going forward.

Should this even mediocre recovery sputter to where even the deaf dumb and blind cannot refute it, after what has been thrown at it kitchen sink and all.....and if rates are at or near 0% should that reality become visable......ouch!

Duratek