S&P 500 Failed at Death-Cross, Deflation Bid Rules Week $TLT, $IEF, $SPY, $QQQQ, $GLD, $UUP Charts, Links

RISK ON, RISK OFF. The market took a hit Friday on option expiration due to lower consumer confidence, lower inflation, so-so earnings, economic data and technical resistance. Read the articles below. $SPY closed -2.75% at $106.66, $DIA -2.5% at $101.01 and $QQQQ -2.76% at $44.34. Last night the Nikkei 225 index (Japan stock index) was down 2.86% at one point and Reuters mentioned a large futures seller, so that move could've diffused into the S&P. In my post two days ago (chart) I mentioned that $SPY was stuck at downtrend resistance and the 50 day moving average, also Adam Hewison's INO blog video warned about a sell off at the "death cross". So technicals were an important factor there imo. Below is a decent link fest and 1-week chart comparison of $TLT, $IEF, $SPY, $QQQQ, $GLD, $UUP and intra-day $SPY. I'll chart out each ETF individually and bond yields next.

Nikkei 225 Down 2.86%, Large Futures Seller #Japan

Nikkei was active overnight to the downside (update: 2:15c)

1) Decent intraday downtrend in Nikkei 225 (1st chart), keep eye out for breakout
2) As noted in my previous post, 9,000 is an important support level (also $EWJ in there)  
3) "Large lot selling of futures by a foreign investor" -Reuters 
4) Nikkei September Future (2nd chart), sold off at 50 day moving average, downtrend resistance

    Nikkei 225 Intra-day -2.862%, 9,408


    Nikkei 225 Index Sep 2010 Future (Chart: OptionsXpress)

    Goldman Paying SEC, IKB Deutsche, RBS $550 Million Fine (Judgment)

    Today Goldman Sachs agreed to pay a $550 million fine to settle civil fraud charges by the SEC. $150 million will be wire transferred to German bank IKB Deutsche Industriebank AG, $100 million to RBS (Royal Bank of Scotland, formerly ABN AMRO Bank), $300 million to the SEC (Securities & Exchange Commission) and $15 million to payback fees (disgorgement). The judgment also said the Defendant (Goldman) must comply with a few "undertakings" which expire in 3 years (find the full SEC vs. Goldman Judgment PDF at SEC.gov).

    Financial Regulatory Reform Bill Passes, H.R.4173 Full Text (7/15/2010) #FinReg

    The the financial regulatory bill aka the "Restoring American Financial Stability Act of 2010", "Wall Street Reform Act" or Dodd-Frank bill passed today 60-39 by the Senate and is headed to President Obama for signature. The House of Representatives passed the bill last month 237-192. The bill is 1,616 pages long. Here is the summary and the full embedded PDF file after the jump. You can also find the full H.R.4173 bill in HTML format at the Library of Congress (Thomas). This is big time regulation.

    (H.R. 4173) entitled ‘‘An Act to provide for financial regulatory reform, to protect consumers and investors, to enhance Federal understanding of insurance issues, to regulate the over-the-counter derivatives markets, and for other purposes.’’.

    The Bear Market and Depression: How Close to the Bottom? - Prechter

    The Bear Market and Depression: How Close to the Bottom?

    July 12, 2010

    By Elliott Wave International

    While many people spend time yearning for the financial markets to turn back up, a rare few have looked back in time to compare historical markets with the current situation -- and then delivered a clear-eyed view of the future informed by knowledge of the past. One who has is Robert Prechter. When he thinks about markets and wave patterns, he goes back to the 1700s, the 1800s, and -- most tellingly for our time now -- the early 1900s when the Great Depression weighed down the United States in the late 1920s and early 1930s. With this large wash of history in mind, he is able to explain why he thinks we have a long way to go to get to the bottom of this bear market.

    Here is an excerpt from the EWI Independent Investor eBook, which answers the question: How close to the bottom are we?
    * * * * *
    Originally written by Robert Prechter for The Elliott Wave Theorist, January 2009

    FOMC Minutes From June 22-23 (Federal Reserve)

    FOMC Minutes from from June 22-23. Read full release at Federalreserve.gov.

    "Committee Policy Action

    Illinois Plans to Raise Billions ($6 Billion Estimated in Unpaid Bills -Comptroller)

    Here's a quick summary of the CNN article today which includes an embedded video featuring Illinois Comptroller Daniel Hynes. Illinois plans to raise:
    1. $900 million through Build America Bonds
    2. $1.3 billion in short-term notes next week
    3. $1.4 billion in debt related to tobacco settlement funds in November
    4. $3.7 billion through debt markets to fund pension obligations

    "It could have as much as $6 billion in unpaid bills that have left schools, social service agencies and vendors waiting months to be paid, according to state comptroller Daniel Hynes."

    If you remember, Illinois took out Iraq on the CDS top probability of default list the other day (link).

    $SPY Stuck at Downtrend Resistance, 50 Day Moving Average (#Chopfest, July 14)

    SPY (the S&P 500 ETF) is stuck at downtrend resistance and the 50 day moving average (109.64). The 200DMA is at 111.41. SPY is currently +0.02 at $109.68. Oh now up +.09, chopfest.

    SPY chart courtesy of FreeStockCharts.com

    MCDX Spreads Up 100%+ Since November (Muni Bond CDS, Credit Default Swaps)

    Distressed Volatility has been alerting you about the municipal crisis since day one (see labels Municipal Bonds or Municipalities for recent posts). Here's an in depth post on the muni crisis from February 25 titled Municipal Crisis Is Spreading, Updates on Distressed Municipalities. Another memorable moment in history was six days ago, when the CDS (credit default swap) probability of default percentage on the State of Illinois was one notch above Iraq! They switched spots since then though. The point is, eroding tax receipts, debt interest payments and lack of funds are squeezing municipalities, some more than others. Illinois had $4.7 billion in unpaid bills and transfers at the end of last quarter (FY 2010).

    MCDX, an index referencing municipal bond credit default swaps, or insurance on muni debt, is up 100%+ since November of 2009. MCDX.NA 14 was not available at that time. On 11/9/2009 I put up Markit MCDX.NA End-of-Day Spreads in a Disqus comment.

    Ford (F) Call Options Active on ISE, Ford Sync Pandora Demo Video (AppLink)

    Interesting option action in Ford today, it was featured on my ISE widget. I saw that Ford (F) calls were active compared to puts, especially the August $11 (under open interest), $12 (under OI) and $13 calls (above open interest: volume 33,387, OI 19,630). September and December also saw decent call volume vs. puts but under OI. There are 633,000 calls already open between $12 and $15 in September which is interesting (option chain snapshots below).

    It looks like the January 2011 calls saw a spread of some sort but on minuscule volume compared to open interest. Ford had a high ISEE ratio today (ISE customer calls opened/puts opened x 100), ISEE Ratio: 1,802, Calls: 21,985 Puts: 1,220Speculating or hedgulating? $F closed at $11.66 so if it hits $13, those $11s-13s could be profitable.

    Ceglia Sues for 84% of Facebook, Aluminum Prices vs. Alcoa, Rent Miami Luxury Cheap, Delinquent Prime RMBS Up

    Links for July 13, 2010

    Man Sues Facebook for 84% of Ownership - Mashable

    US trade deficit widens to $42.3 billion in May, largest gap in 18 months, as imports rise - AP

    Charles Bradford (Affiliated Research): Aluminum Prices a `Headwind' for Alcoa: Bloomberg Video

    US corporation credit quality faces market threat (watching VIX): Moody's - Economic Times (h/t @asiablues)

    Miami's Downtown Comes Alive as Condos Fill With Renters - Bloomberg
    (Roomates pay $900/month each for wrap around balcony, water views, gym, spa, steam room)

    30-Year Treasury Bond, TLT Watch, Bond Vigilantes Here Yet? (+IEF, 10Y-Note Charts)

    If you're not already watching Treasuries, keep an eye on the 10-Year Note, 30-Year Treasury Bond, $TLT (20+ Year Treasury Bond ETF) and $IEF (7-10 Year Treasury Bond ETF) as they are all testing near term support levels. Look at the 30-year Treasury and TLT specifically as they are most at risk of breakdown here. Something to be aware of just in case the bond vigilantes are preparing something. There's still deflation risk in the air though, so if that's the case we'll see if the long bond gets invited to the bid. Any current or future bond vigilantes reading this? Take a look at the charts of $USB, $UST, IEF and TLT below. I'm also looking at a ratio, I'll post the chart tomorrow.

    S&P Trading 40% Above Historical Norms Based On Normalized Earnings -Hussman

    This week's "Weekly Market Comment" by John Hussman titled "Misallocating Resources" is a good read. He is the President of Hussman Funds. Read the full report at their website. Below I quoted the paragraph where he talks about S&P valuation. He takes on the price-to-forward operating earnings valuation ratio that analysts use.

    Place Your Hedged S&P Bet, $1,440 or $400 Target ($SPY, $SPX, All or Nothing)

    Vinny Catalano, president of Blue Marble Research, was on Tech Ticker today and gave two potential outcomes for the S&P which I found interesting. He said the S&P will either trade at $1,440 on $80 earnings per share (EPS) x 18 price/earnings multiple (P/E) -or- hit $400 on $50 EPS x 8 multiple. Place your hedged bets folks, all or nothing. Below I embedded the Tech Ticker video along with an S&P 500 chart going back to 1990, the last time the S&P traded at $400. The S&P closed at 1,078 today so in percentage terms it's either 33% upside or 62% downside from here. Will it be higher EPS with multiple expansion or lower EPS and compression.

    S&P: U.K. AAA Rating Long Term, A-1+ Short, Negative Outlook (7/12)

    From S&P today, read the full release.
    # We are affirming our 'AAA' long-term rating on the United Kingdom reflecting our view of the U.K.'s resources, as evidenced by its wealthy and diversified economy, ample fiscal and monetary policy flexibility, and adaptable product and labor markets.

    # However, in our view, a number of large and politically challenging spending decisions are still to be made, and Standard & Poor's medium-term economic forecasts for the U.K. are less optimistic than the assumptions underlying the budget. We therefore believe there is still a material risk that the U.K.'s net general government debt burden may approach a level incompatible with the 'AAA' rating.

    # As a consequence, we have maintained the negative outlook on the long-term rating on the U.K.

    XLF July 15 Call Options Active, Second Mortgage Warning, Dagong on US Credit Risk (Reads)

    `Big, Bold' Bet on U.S. Banks Rallying Drives Surge in Call-Option Trading - Bloomberg

    Call Options on Financials ETF (XLF) in High Demand - Wallstreetpit.com
    [July option expiration is on Friday, could be placing bets on earnings next week,
    September/December calls also active, calendar spread]

    Google Working On Secret New Ad Format: "Interactive Video Ads" - Business Insider

    David Rosenberg: Odds Of Double-Dip Jumped Another 3% Last Week, ECRI - Business Insider (July 12)

    Liening on banks: Second mortgages are next housing crisis - NY Post

    Chinese credit firm says US worse risk than China  - AP

    Accredited Investor Rule is a Joke (Exposed in 2008), Knock Down Existing Financial Infrastructure

    In my opinion, the existing financial infrastructure and out dated securities laws need to be bombed out and rebuilt in order to provide a REAL, transparent, normal functioning market. As we saw in the years leading up to the financial melt down, excessive bank leverage, lack of capital (credit losses / counterparty insurance claims), credit rating failures, artificially low borrowing costs and private illiquid markets between banks, hedge funds and insurance companies detonated the biggest suicide bomb in financial history. "Accredited investors", "qualified buyers" and "sophisticated investors" were also directly responsible and these securities laws are too big to fail.