The Expected Snap-Back Rally Occurs Right on Time

As mentioned in this space yesterday,

A decline in US stock markets will only trigger more printing, more inflation and an even more unbalanced global economy, one that was already teetering on the brink of disaster, even before the Japan debacle. However, such an inordinate infusion of capital may cause a snapback rally at any time. If such occurs, it will be easy to spot, as it will be sharp and large. The other characteristic of such an event is that it will have a relatively short duration - an afternoon, a day, a session and part of another, at most.

Well, today was it. If there's one thing the self-appointed Masters of the Universe on Wall Street and in Washington absolutely cannot tolerate, it is human events spinning beyond their ability to control them, because their power declines under such circumstances, and their sole response is to turn up the algos on their stock-buying computers and send equity prices ever further into the stratosphere of the absurd.

Today's mammoth run-up was well conceived and not derailed by any further bad news coming out of Japan, though what to do about those rebellious peasants in the Middle East still remains a problem for our sweet, elite masters. For a microcosmic view of it all, note how stocks and oil advanced smartly, with gold lagging and silver falling even more.

The elitist snobs will tolerate gold, even hoard it in times of panic, but they hate silver, because if gold is the metal of kings and monarchs, silver is the coin of gentlemen and lower rabble. The great wazoos and muckety-mucks will have nothing to do with it, which is why it continues to be supressed at every opportunity, by now, an open secret.

We'll maintain that silver is still the best investment for the current condition, despite its wild swings. Eventually, as we saw in the latter half of 2010, it will stay with and surpass gold in percentage gain.

In the meantime, the Bank of Japan (BOJ) will meet with their effete counterparts in the G7 to receive approval for intervention in their rapidly-appreciating currency. In other words, with money inflows to Japan, the Yen is becoming stronger, making more capital available for eventual reconstruction efforts, while at the same time boosting the price of its exports, which is considered a negative for the globalist agenda. The Bank of Japan will seek to buy up Yen, squeezing some of the liquidity out of it and stabilizing it against other floating currencies.

It's a bit of a complex condition, causing money flow disruptions and imbalances. In the meantime, the US dollar continues to depreciate, falling to a 4-month low, dipping just below the 76 mark at 75.995 on the dollar index.

Dow 11,774.59, +161.29 (1.39%)
NASDAQ 2,636.05, +19.23 (0.73%)
S&P 500 1,273.72, +16.84 (1.34%)
NYSE Composite 8,064.86, +134.99 (1.70%)

Despite the big headline numbers, the internals were less convincing that today's rally was anything more than money-tossing, as advancing issues beat decliners, 4438-2072, though new lows retained their edge over new highs on the NASDAQ, 56-35, for the sixth consecutive session. On the NYSE, it was nearly a dead heat, with 30 new highs and 28 new lows. Over the past six session, the advantage has gone to either side an equal three times apiece.

Volume was once-again telling. Though it was slightly elevated, it by no means was in a range indicative of an all-in rally. As mentioned previously, these kinds of things are normally sharp and short, especially in the light of tomorrow's quadruple witching day for options. There was plenty of arbitrage to go around for the sharpies.

NASDAQ Volume 2,011,827,250.00
NYSE Volume 4,743,120,500

Renewed tensions in the Middle East (and, no doubt, the insatiable urge to screw motorists with high gas prices) caused a run-up in crude, which elevated $3.42, to $101.42, on the NYMEX.

Gold gathered some momentum, gaining $8.10, to $1,404.20, but silver shed 21 cents, to $34.26, a price still close to recent 31-year highs.

With all the focus on the nuclear crisis in Japan, some revealing economic figures were released over the past two days. The PPI was up a whopping 1.6% in February, with the CPI chiming in with a gain of 0.5%. Inflation, that thing Ben Bernanke says is under control, temporary and not a problem (well, maybe not for him), isn't on its way here, it has arrived.

New housing starts were at some horrible four-decade low, with building proceeding at an annualized rate of 479,000 units. Industrial production fell 0.1% in February and capacity utilization dropped to 76.3% These kinds of numbers really gives one confidence that the liars in Washington have once again dropped the ball on the economy, all along telling us that we're "recovering."

In the wild new world normal, "recovery" is tantamount to Charlie Sheen's "winning" - an innocuous word, significant of absolutely nothing.

Fear Trumps Greed for a Day

As has been reported here over the past couple of days especially and for the better part of the past month, US stocks are heading lower.

Today's action was in stark contrast to the dip and rally from Tuesday, as news coming out of Japan just continues to worsen, as most thinking people assumed it would. Without going into the gory details, it appears that the nuclear plant that has been a problem since Friday's earthquake/tsunami is headed toward at least partial meltdown and at worst total meltdown.

Making matters even more horrifying is that there are six reactors at the site. Up until now, only four of the six reactors at the Fukushima Daiichi site have been affected, with all four of them spewing radioactive material at some time or another over the past five days, though it now appears that reactors #5 and #6 are at risk as well.

Information from the site has been sketchy at times, contradictory at others, but confusing and increasingly worse all along. It appears that the Japanese people are in for a long period of pain and suffering, and the implications are likely to be felt worldwide.

On Wall Street, where bulls ignore the obvious and bears hope against the worst, but bet on it, stocks were down in the early going until just before 11:00 am EDT, when news came, via a government official, that the situation at the plant had worsened considerably. That sent stocks into an absolute tailspin, with a full 1% decline within minutes of the news.

A rally was attempted when stocks hit their lows of the day at 2:00 pm, but it sputtered badly and the markets stared grimly at one of the largest one-day losses of the past two years.

Dow 11,613.30, -242.12 (2.04%)
NASDAQ 2,616.82, -50.51 (1.89%)
S&P 500 1,256.88, -24.99 (1.95%)
NYSE Composite 7,929.87, -162.24 (2.00%)

Confirming the carnage suggested by the headline numbers, declining issues battered advancers, 4889-1704. It's amazing it wasn't even more lopsided. Our leading current indicator has finally offered confirmation of a directional trend. New highs on the NASDAQ numbered 31, new lows, 74. On the NYSE, 31 new highs and 38 new lows. That makes five straight days on the NASDAQ that new lows have outnumbered new highs and three out of five on the NYSE.

If anyone's been waiting for indicators to flash red with sirens blaring, today was it. Japan's woes will continue to dominate the news for the foreseeable future and the associated supply chain issues of a globalized economy are beginning to come to light. Shipments of crucial parts are going to be delayed or stopped, trade will suffer and a large chunk of the world's third largest economy is going off-line for a while. Whether that is going to be weeks or months or years is still unknown, but the betting is that disruptions will extend through at least the end of the summer.

Another tell-tale sign that today was a day of capitulation by the bulls in US stocks was told by the off-the-charts volume in today's trading. It was the largest volume day of 2011 and may still be dwarfed by the eventual follow-on decline. One caveat is that the Fed continues its abuse of the US dollar by printing more of them at every opportunity. A decline in US stock markets will only trigger more printing, more inflation and an even more unbalanced global economy, one that was already teetering on the brink of disaster, even before the Japan debacle. However, such an inordinate infusion of capital may cause a snapback rally at any time. If such occurs, it will be easy to spot, as it will be sharp and large. The other characteristic of such an event is that it will have a relatively short duration - an afternoon, a day, a session and part of another, at most.

NASDAQ Volume 2,596,625,000
NYSE Volume 6,569,946,500

Commodities caught some bids, as sellers of equities rushed to less-risky assets. Oil was up 80 cents, to $97.98 as conditions in the Middle East continue to rage on, unsettled. Gold gained $3.30, to $1,396.10, and silver was up 36 cents, to $34.47. The move in precious metals is particularly interesting as it is a break-away from equities. Tuesday, all assets fell in a rush to liquidity. Today, the players were placing bets: for precious metals and other valuable commodities and against stocks and currencies.

Since there is no quick fix to nuclear accidents, especially those being mentioned alongside Chernobyl - the worst ever - don't expect the plant in question in Japan to be repaired for some time, if ever. Officials are only now poring over whether to entomb the reactors with heavy doses of cement or continue containment efforts, which are not working very well at present.

At this point, any intelligent human should take advantage of the short-term decline in the precious metals, but also maintain a large sum of cash, outside of any investments. In a declining, deflationary event, which may be occurring at this very moment, cash will be king. In a complete rout of economy, society and civility, gold and silver will reign supreme. Both situations have great potential at the current time.

Optimism Can Be Good or Bad

Americans are an optimistic lot. Nothing wrong with that, as long as some of the optimistic sentiment is grounded in reality. There's a big difference between wishing and hoping for some desired result that may not have a good chance of happening and confidence based on experience and factual data.

Overnight, conditions in Japan took a turn for the worse as another reactor at the damaged Fukushima Daiichi nuclear facility about 100 miles North of Tokyo suffered an explosion. Japanese officials tried to appear calm, but the fear and panic on their faces was not easy to hide. Reactor #2 at the plant incurred a violent explosion that reportedly damaged part of the containment vessel which holds the unstable rods of highly-charged uranium.

Shortly after that blast, a fire in reactor #4 was reported to have occurred in the pools holding spent fuel rods, also highly toxic and radioactive. Reactors #2 and #3 had already been damaged by xplosions in the aftermath of the 9.0 earthquake and tsunami which hit the island nation on Friday.

The Japanese stock market, the NIKKEI 225, suffered a substantial loss of nearly 11% before trading was halted. Other Asian markets took losses as well, and European markets were down more than 2% when stocks opened in New York.

The drop on the open was a stark and panic-stricken response to what appeared to be possible meltdown in the #2 reactor and spreading risk of contamination to a large area of Japan. A radius of 20 kilometers (12 miles) was evacuated and another in another area further out - to 30 kilometers - residents were told to stay inside due to increased risk of exposure to radioactive elements in the air.

Most of the news occurred during the night for Americans, so there was a bit of unease at the open. The Dow fell 310 points in the opening minutes of the session, with the other major indices taking similar falls.

But, as it turns out, that was the worst of it for US stocks, which rallied in a diagonal path all day as no new news came from Japan. While traders put their most optimistic attitude front and center, the conditions in Japan are still very much in a state of flux. For now, most of the damage has been contained, but the risk of complete meltdown of any one of the three badly-damaged reactors is still prevalent, which is why the attitude of the American traders and investors may be a bit premature.

Besides the nuclear plant situation, conditions on about a third of the main island remain challenging and desperate. Aid is only now reaching some of the victims, the death toll continues to mount and reconstruction is still weeks and months from even beginning. The scope of the devastation is being underplayed by American media. This is a disaster that will play out over months and years, not days and weeks.

The major indices still suffered substantial losses, though they easily could have been worse. The intra-day drops of the past two days have broken through support areas - areas that will be retested before any hint of a rally occurs.

Dow 11,855.42, -137.74 (1.15%)
NASDAQ 2,667.33, -33.64 (1.25%)
S&P 500 1,281.87, -14.52 (1.12%)
NYSE Composite 8,092.11, -101.85 (1.24%)

Declining issues slaughtered advancers, 5101-1536. There were 23 new highs on the NASDAQ, but those were overshadowed by 134 new lows. On the NYSE, only 29 stocks hit new highs, while 77 made new lows. This was the 4th consecutive day of new lows beating new highs on the NASDAQ and the second in the last four for the NYSE.

From a technical perspective, the high/low readings are beginning to develop into a trend, which, if confirmed by further continuation, will produce one of the strongest directional indicators to be found. The divergence of new highs and new lows normally becomes a long trm trend, lasting anywhere from six months to more than two years as it is a primary trend indicator. While there are no hard and fast rules surrounding that particular metric, any change lasting more than a week in duration should be confirmation of the new direction of the markets, in this case, down.

What is occurring inside the US markets is very much the result of too much money in the system. Today's action in global markets was a liquidity-driven event, as assets of all nature were liquidated in favor of the relative safety of cash. Since the Federal Reserve has been pumping money out at an unprecedented rate, today's sudden drop and subsequent rally has all the characteristics of a flooded market with an unstable or unreliable base.

It's very much the same as an old car that has trouble starting and running. A jump may get the batteries to deliver enough juice to get it rolling, but problems inside the engine cause it to stall out again. Fixes are short-term, before a mechanic says the engine needs a complete overhaul.

That is precisely the situation in US markets. The issues coming from Japan are masking real, structural problems below and the daily new highs vs. new lows on the NASDAQ are flashing warning lights that many are ignoring at the peril of their capital.

Volume was extremely high today as well, another bearish indication.

NASDAQ Volume 2,371,639,000
NYSE Volume 5,944,351,500

What made matters even more convincing that the drops in global markets were driven by a rush for liquidity were evident in commodities. WTI crude oil futures were absolutely hammered, losing $4.01, to $97.18. We can only hope that the world-wide community can see the oil market for what it really is - bloated with excessive supply and wildly overpriced as compared to real economic conditions - and continue selling it off until balance is restored at around the $75-85 per barrel level.

Gold was hit hard as investors raced into cash positions, losing $32.10 on the day, to 1,392.80, but down much more in earlier trading. Silver also took a substantial hit, off $1.72, to $34.12.

Once there is some clarity to Japan's situation, the precious metals should continue their interrupted rally, or, at the worst, outperform stocks in a big way.

There's still far too much uncertainty in the world to be fooling with paper assets unless you're a skilled day-trader who can afford to take occasional large losses. For the rest of us, the safety and security of gold and/or silver are second to none.

Japan Disaster Dominates Markets

The general perception of the disaster in Japan - caused by a massive 9.0 earthquake and the resultant tsunami - is, as it should be, one that measures the human tragedy above the resultant damage to property and goods. Surely the people whose homes have been either crumpled by the force of the quake or simply washed away by the flooding sea waters face unknown futures.

It is still too early to tell how the government in Japan will deal with the now-homeless residents of the region most-affected, but the initial response has been less-than-heartening. The most glaring examples of ineptitude and unpreparedness have come in the form of communications surrounding the still-unfolding nuclear disaster, the third leg of the crisis and possibly the most severe.

Whether it is unwilling or simply unable to assess the situation at the various reactors that have been damaged, the government's response has been self-contradictory and incorrect at worst or unreliable and confusing at best. What is known is that two reactors at the Fukushima facility have suffered irreparable damage, suffered explosions and possibly begun to partially melt down. Radioactive gasses have been released both on purpose and by accident, though the danger of a full-blown nuclear nightmare still exists, despite many reports to the contrary.

Barring complete and concise factual information, a commodity in quite short supply in the island nation, there is simply no way of knowing exactly the conditions on the ground. As nuclear power events go, this one is still closer to the beginning than the end, though many experts are hopeful that the unstable rods can be quieted with a combination of sea water and boric acid. In any case, reactors #1 and #3 at the facility are kaput, with #2 also reportedly damaged.

An evacuation zone of some 20 kilometers suggests the release of radiation into the atmosphere has already gone well beyond a dangerous level to making the area in a 12-mile radius of the plant temporarily uninhabitable, as is the situation along miles of coastal land subsumed by the tsunami.

Capital and financial markets have done their level best to downplay the short and long term effects of the total disaster, though they too are fishing in a deep and muddied stream of information. There are still too many unknowns to make critical assessments and business decisions. One thing is for certain, that the costs will run much higher than initial estimates of $180 billion. Close to 10% of Japan's population has been directly affected, while the rest of the population has, and will, suffer tangential effects.

To a country as small - geographically - as Japan, this disaster is a game-changer. Even in well-protected Tokyo, there's incidental damage to personal property in addition to a high emotional toll, which would be a mistake to underestimate.

Being one of the largest economies in the world, though one of the least stable, Japan will recover and rebuild, but the effort will take years, not months, after the effects have long since dropped off the top of the news. That's why the markets probably will be unsettled to lower for the near term. The issues facing the Japanese people have the potential to have long-reaching effects into the global economy.

As such, stocks were off world-wide with a few exceptions; the Nikkei was down more than 6%.

In New York, the major indices reversed Friday's gains with a gap-down open, plunged through the morning, settled at resistance and gained into the close, though the effort was more day-trading than anything else. Volume was lower even than Friday, bordering on being one of the slowest trading days of the year.

Dow 11,993.16, -51.24 (0.43%)
NASDAQ 2,700.97, -14.64 (0.54%)
S&P 500 1,296.39, -7.89 (0.60%)
NYSE Composite 8,193.96, -54.57 (0.66%)

Losers backed down winners by a pretty healthy degree, 4416-2088. On the NASDAQ, new lows topped new highs for the third straight session, 75-33. Over on the NYSE, new highs narrowly nipped new lows, 37-30. It is advised to keep a close eye on the daily new highs/lows, because the markets are in flux and seeking direction. It's still looking like a 65-70% probability that the markets have already made a turn and the dominant direction for the next six to eighteen months will be lower.

NASDAQ Volume 1,810,942,250
NYSE Volume 4,571,130,500

Commodities were affected by the Japan disaster, though to a much smaller degree. Front end crude oil on the NYMEX spent most of the day under pressure, but ended up with a marginal gain of just 3 cents, at $101.19. Between the reduced demand in Japan and the still-unsettled situation in the Middle East, prices could go either way, but the trend seems to be following global trends lower.

Gold was up $3.10, to $1,424.90, but silver shed 10 cents, to $35.84. Both of the dominant precious metals are trading near record highs, consolidating for another leap forward. Any major global event of consequence will send both gold and silver off like bottle rockets, though with the momentum already built in, no further catalyst is really needed, as the continual, non-stop printing of fiat dollars, yen, yuan and euros is providing more than enough fuel for the PM fire.

Markets don't get much more distorted and unpredictable than when a major natural disaster unfolds. Putting that on top of an already shaky foundation and wasteful stimulus is a witches brew of unknowable mystical monetary force.

World Down, Americas Up, Why?; What BTFDYFI Means

The devastation form the largest ever recorded earthquake in Japan is pretty severe. Markets worldwide sold off, all of them, in uniform fashion, except for those in the Western Hemisphere.

Why?

Good question, and the only plausible response available is that the US and Western Hemisphere gains comparative advantage for any other global setbacks that aren't in our immediate physical hemisphere, though it's probably not quite that simple.

The US, Canada, Mexico and South America surely aren't isolated in any manner from Japan. Devastation there will have a negative effect to some degree on global trade. The real difference here is that US markets are not free, not liquid and prone to machinations of madmen like the one who sits as Chairman of the Federal Reserve Corporation (a Delaware corporation). The other markets - in particular the Canadian and Brazilian markets; Mexico was down sharply - are actually in our global proximity and economic sphere of influence, so it is likely that once events in Japan had been digested and recognized as not a huge problem for the US, the marketeers went to work with the zero-interest rate free money on hand and BTFD.

(Those not well-versed in the acronym world of high finance, BTFD stands for Buy The F---ing Dip. BTFDYFI stands for Buy The F---ing Dip You F---ing Idiot.)

And so it is. Stocks ended the week with nice gains on a day that millions of Japanese people have suffered tremendous personal and financial losses. It takes a really cold indifference to human suffering to buy stocks in the face of devastating circumstances. Fortunately, there were not many people doing that; volume on the major exchanges was severely thin. Only the worst of Wall Street - meaning insiders from major banks, brokerages and hedge funds - were in on the dip-buying today. Hopefully, they will be richly rewarded with losses in coming days.

Dow 12,044.09, +59.48 (0.50%)
NASDAQ 2,715.61, +14.59 (0.54%)
S&P 500 1,304.28, +9.17 (0.71%)
NYSE Composite 8,248.53, +48.46 (0.59%)

Gainers turned the tables on losers, 3861-2613. New lows out-polled new highs on the NASDAQ, 71-31, but the result was just the opposite on the NYSE, with 32 new highs and 19 new lows.

NASDAQ Volume 1,825,802,625
NYSE Volume 4,237,853,500

The day was more eventful for commodities. Crude oil on the NYMEX front futures contract fell $1.54, to $101.16, as the Middle East's "day of rage" turned out to be more a stroll through the city square than full-throated protestations. Maybe the Arabs with government grievances should hire a few of the rent-a-thugs from Wisconsin, since they are no longer needed there.

Gold and silver got a boost on rumors that a furtherance of the Fed's easy money policies were in the bag. Gold, after trading lower through the early portions of the New York session, finished with a gain of $9.30, at $1,421.80. Silver, under similar circumstances, shot up 87 cents, to $35.94. The confidence of precious metals holders and traders is extremely high and rising. while there may be occasional setbacks along the way, the only way for the metals to go is higher, probably much higher, doubling or tripling in value from here over the next three to five years, though especially silver, which underperformed gold in the 2000s, but is quickly making up for lost time.

At last, we arrive at the weekend, with the major indices suffering roughly 1% losses for the week. The trend apparently having reversed over the past few weeks, remember that it is your friend.

Enjoy the NCAA conference tournaments this weekend and get ready for some wild action on the courts and in the markets in weeks ahead.