Friday Morning

Mr Market continued its new declining ways overnight and opened soft this morning.  After a "dead cat bounce" that took the Dow to plus 20, the market reversed and is currently down 33 Dow points.  All of the rest of the major indexes are also off this morning.  As the Copper prices has seemed to lead the market since March, 09, I think it should be fitting to review the chart for Copper and I have used the Copper ETF....JJC.  Notice that it has broken down in a significant way.... breaking long term support and long term trend support lines that had come together and at the same time, forming a large Head and Shoulders formation and then breaking the neck line with authority.

JJC Click to enlarge

The SPY looks similar without the H&S.

SPY Click to enlarge

Oil is lower at 100.16 as the Japanese earthquake has taken Japanese refinery capacity off line, reducing demand.  Gold is off at 1411.3 and Silver also trading lower at 34.57.  The Risk Off trade takes a little hit today, as the Euro is up, trading at 1.383 and the Dollar down at 77.01.  The 10 year Note is off 1/2 after the big run up yesterday, trading at 3.39% and the Bond off 5/8 at 4.54%

The big news this morning is of course the huge earthquake that hit Japan just off shore on the East Coast, sending a 30 foot Tsunami around the the Pacific.  The impact on the market is expected to include the Japanese need to liquidate liquid assets which will include the big positions taken recently in Euro Sovereign debt, and the expected insurance losses.  In addition, the loss of Japanese refinery capacity will impact demand for Oil, which has already shown in the oil market.

There is an interesting report this morning at Zerohedge on the sharp and persistent decline in the Shadow Banking and Conventional banking system.  The article is written as a reason that QE3 will likely be necessary.. as the Fed becomes the only source of liquidity... even though it is clear that QE2 has failed.  Of course, many comments insist that this means inflation.  But there is another way to see this decline in the Shadow Bank system.  I have a friend who is very well established in the commercial RE industry who 3 years ago had a net worth of about 12 million dollars, and a healthy cash position in addition to his numerous commercial building.  After being forced to bring large cash deposits to the table in order to refinance 2 of his buildings, and finding himself suddenly without his cash, and realizing that he would be unable to bring cash to the refinance of his remaining buildings, and at this same time understanding that he could not sell any properties to raise cash, he made a statement that blew my mind.  He referred to the fear the general public has about the Fed liquidity programs, and the possibility of inflation and he said..."I don't care how much money they print.. we are going to run out of money."

When we learn that the Shadow Banking system had seen a drop of $440 Billion after 19 months of decline, we get an idea of just how much credit is being destroyed and the deflationary impact on the economy.  Inflation may well be in our future, but it seems to me that deflation is the more timely concern.

Oh, and the Momentum Change indicators are still Bearish.  No additional change to the stop loss prices, but I may have some new trades this afternoon.

Best To Your Trading!

Bill