Sunday, January 23, 2011

Communist China Visit to USA

At center stage this week was the visit from Communist Chinese President Hu Jintao to check on the status of his biggest holdings: $1 trillion dollars worth of US treasuries, and growing larger ever passing moment.

It definitely is good business for them to placate your biggest business partner, even if they are virtually bankrupt, and especially if they possess the most powerful military machine the world has ever seen. So the communist chinese deception continues.

The usual US concerns on issues ranging from currency manipulation and imbalances, trade imbalances, throttling back North Korea, and human rights issues , lack of free democratic elections, chinese industrial espionage and poor quality , low standards toxic products made in Communist China for export to the USA were mostly ignored, and the Republican interests was emphasized. Communist Hu's visit was meant to calm the waters and keep the deception going -- and move to greater appearance of cooperation between the two superpowers ( the odd couple of world foreign policy ).

We think it did. The current situation is a classic deceiving standoff: Communist Hu needs the ignorant materialistic and arrogant American consumer to keep spending to keep their Communist controled economy growing, moving the poor to middle class and keeping the Communist political status quo. .We need access to their markets, low cost labor for manufactured goods and keep them rolling over our treasuries. Who cares about free elections in China when 1 % of US population is getting more rich and powerful.Keep the foreign policies double standards as it is, keep closing our manufacturing plants in the USA, adding more to the low skilled unemployed labor force. No one in the USA is going to oppose it anyhow.The unemployed in the USA do not have a political voice that really matters. What is really important is for Wall St. and the banksters.

A decision to move away from the US dollar by buying other currencies and changing the status of the dollar as the reserve currency would be devastating to our way of life. So for now, the status quo continues, but Communist China has the trump card of owning our debt. This week, the dollar fell to its lowest levels in several months against most currencies, amidst rumblings from the market about our debt levels.

The divergence between the Dow and all other indexes is about as obvious as I have ever seen it. The DOW made new closing highs, while the QQQQs closed under the fast moving averages and ended with a lousy short term price pattern. The SPYs are waffling around the short term MA, after having tried to close under for the past two days. A reminder here is that the market phase on all the key indexes is still positive, so what we are looking at now is a test of the current bullish market phase.

Despite some continued selling in the first half of Thursday, the ES has recovered more than half the decline, continuing its surge on Friday morning on favorable GE earnings. It’s a bit premature to say the low is in, though, and we actually would like to have seen a bit more shakeout down to the ~1260 level. Looking ahead to next week, the FOMC meets Tuesday and Wednesday, issuing an announcement Wednesday afternoon, and Q4 revised GDP is released on Friday.

 Earnings season will continue and there is big Treasury supply on deck from the 2/5/7′s. This imparts some bearish seasonality from Tuesday through Thursday (with possible counteracting bullish seasonality on Wed from the FOMC meeting). This sets up the possibility of more sideways action under the 1300 level, with a potential double top. Traders will need to convincingly push above 1300 to get everyone back on board and squeeze the latest shorts. Watch for a trend reversal between Jan 28 and Feb 08, guaranteed.

Upside Vertical Development remains the primary phase of price action in the stock market. It is unlikely the stock market will “invert V” top. It is likely it will, at a minimum, form a Balance Area first. It is also likely that any top at this stage may be tested several times over weeks or months as part of a larger degree Balance Area.

The 1300-1350 zone  is a best guess for a “stopping price”, or pause, in the current rally. Last week’s high was 1296.25 and may be near the upper extreme in price for a while. 1200-1173 is the downside Key Institutional Level on the weekly chart.

The ES Daily may be developing a Balance Area between 1272-1264 and 1290-1300.Below there is 1258-1252 key zone.

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