comments and outlook for 08-01-2011

The Kabuki theater continues this weekend in DC.  Make no mistake about it - this is to distract you from what is really going on.  The situation in Europe continues to worsen.  Italy had to pull a longer term bond offering because there was no demand.  Interest rates in Italy and Spain are moving up.  The EU (ECB) bailout plan is too small to support the banks in these two larger countries (banks in these countries hold a lot of sovereign debt).  The Fed has been told not to offer the same level of interbank swaps as they did back in 2008-2009 crisis.  The EU is between a rock and a hard place with no plan for dealing with a financial freeze up in Italy and/or Spain.  If the European banks have to buy dollars in the open market the dollar will move up substantially as the Euro plunges.  NOTE:  money market funds have been reducing European exposure reducing the US$ available for over night lending in Europe. 

Then there was the GDP report last week.  The next revision almost surely will show negative growth in the first quarter.  And the FED has told us the second quarter weakened from the 1st quarter.  So you don't suppose the second quarter will be revised negative also do you?  So you see why the PTBs are giving us Kabuki theater to distract us.  But that can only go on a short time longer.  In my monthly outlook I pointed out to you the Kitchin business cycle should have topped in December.  You think that may have happened?

I came across a chart of GDP I think you will find interesting:

If GDP goes below 2% we have a recession.  No way - the PTBs tell us things are improving slowly.   Oops, didn't that just happen?  Would you like nuts or sprinkles on that double dip.  Okay, enough commentary.

We should see a bottom Tuesday during the day as several of the shorter and 34TD cycle bottom.  Once these cycles turn up we should see a rise off of Tuesday's bottom.  Interesting isn't it that our cycles show a bottom on Aug 2 - the day that most likely we see a deal done in DC.  After the bottom we likely will see some up movement for 2-3 days.  Friday could be flat to slightly up.

Here is a visual:

GL traders.  Do your own analysis.  You might want to try a long or two by Tuesday close (Wednesday open) but be careful and use stops.  Refer to my monthly outlook - any moves up are apt to be short (no more that 4-5 days) and limited.