By Steve Betts

Here’s spin! Bloomberg announced that the Chicago PMI number fell to a lower than expected 56.7% but “it was the fourth best number this year”.

Talk about the glass being half full! I guess I should be used to it by now but I’m not and I never will be.

Then we see the typical knee-jerk reaction to go along with the spin as the flock reacts to what was instead of trying to focus on what will be. Admittedly it’s not easy to look out into the distant future and try to read the tea leafs but that’s what the market does.

Betting on past performance, especially in today’s market environment, is a sucker’s bet.

On a separate note it was announced that the FDIC now has 829 banks on it problem bank list and that is a substantial increase. So far 118 banks have been taken over by the FDIC this year and that is ahead of last year’s pace.

This divergence between what passes for news and the reality that is the average person’s life is creating stress in the market place. That stress is manifesting itself in a number of ways including but not limited to:
• Declining volume throughout the bear market rally that ran from March 2009 to April 2010,
• The significant number of distribution days since the April 26th high,
• The deterioration in the advance/decline line for the market as a whole,
• The unprecedented number of 90% days, twenty-six altogether, since the April 26th high,
• The terrible volume all summer long, indicating the absence of big money, and
• The fact that stocks have never been “cheap” by historical standards in more than two decades.
In particular I am fascinated by the number of 90% days. We’ve seen fourteen 90% down days and twelve 90% up days since the April high. What’s more the down days by their very nature should signify an exhaustion of the urge to sell and yet they are almost always followed by more selling. On the other hand the up days, especially over the last month, fail to see any follow through to the upside!

All of this adds up to a market under extreme stress, the institutional buyers know this, and that is why they’re avoiding stocks altogether.

It is worth noting that the neckline comes in at 10,334 and that just happens to be another key Fibonacci number, resistance in this case.

Finally, we have the 50-dma trading below the 200-dma and its now moving down and away from it at an increasing rate.

For those of you who follow Dow Theory like I do you know that the Dow broke above its June closing high in July in order to complete the right shoulder in the first chart and the Transports confirmed this break out thereby giving a significant buy signal.

I believe this signal is an error! Right now you can see that the Transports have also formed a head-and-shoulders top and recently broke below its neckline. What’s more the 50-dma in the Transports just broke below its 200-dma so it is playing catch-up and in a hurry.

In conclusion, when I see both safe haven investments like gold and the Swiss Franc breaking out to the upside at the same time, and in spite of the best attempts to suppress price, I know that something is up.

Then I put it together with the pieces of the market previously mentioned and it convinces me that the stock market is headed for a crash.

I fully expect to see a crash, including one day with a 1,000 point decline, in late October or early November. The crash is a process though and that process will begin in earnest once the Dow closes below the 9,662 neckline.

Meanwhile I view this as preparation for an event that no one believes is coming and that will make it even more devastating. Today’s media and the administration have everyone conditioned to believe that somehow things will work out. Close your eyes, hope really hard, and we’ll muddle through. My experience is hope is the last thing you lose before you file for bankruptcy.

Courtesy: www.stockmarketbarometer.com

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