Test rally fizzled yesterday on low volume

Market forces May 27,

Investors started buying when NBC/GE/Pravda used the Conference Board's Consumer Confidence Index rise to 54.9 from 40.8 to say the worst is over. Studies have shown that consumer confidence is not a predictor of the stock market. To see how consumer confidence really looks go to:
http://www.martincapital.com/chart-pgs/Pg_conco.htm

Treasurys have begun to sell off as they are considered less of a safe haven. Systemic risks are rising again and interest rates are rising.

Foreclosure home sales are up in many parts of the country and prices continue to decline. Prices in 20 major metropolitan areas dropped by 18.7 percent in March when compared with March a year ago, according to the Standard & Poor’s Home Price Index that was released Tuesday. That was about the same as February and shy of January’s record plunge of 19 percent. That is almost a straight-line rate, as we would expect at an economic inflection point. It confirms our analysis that uses the fact that the inflection point occurs about half way to the bottom of a major crisis. Sales have fallen 38 percent from the peak in 2005. The Mortgage Bankers Association said that the highest home loan rates in more than two months drained demand for refinancing last week, dragging total U.S. mortgage applications to the lowest level since early March. The cost of borrowing between banks is on the rise again. Foreclosures have picked up again and that is an indication that we may not even be half way through this decline. The recession is just starting to bite. Seventeen of the cities tracked by the S&P index declined from February. That was an improvement over the previous month, when prices in all 20 areas fell. But here again the turning point has not yet been reached because that would be when half the areas improve and half decline.

Roubini, who is widely credited for predicting the current economic turmoil, spoke at the Seoul Digital Forum. "We are not yet at the bottom of the U.S. and the global recession," said Roubini. "There is still too much optimism that a recovery is just around the corner," said Roubini, a professor at New York University's Stern School of Business and chairman of RGE Monitor, an independent economic research firm. Roubini said the outlook for Asia was more positive than for Europe, Japan and the United States, thanks to stronger fundamentals. Once the recession ends, "U.S. economic growth is going to be below potential for at least two years," he said, amid multiple imbalances in the housing sector and the financial system, and the rise of public debt.

Staples 1Q profit is down 33% but Pravda is now spinning that as positive by lowering their estimates.


Market Outlook

Yesterday both our Re-Spiral based indicators went negative. The momentum of the market was not enough to keep us waiting for a pullback to buy in again. This is ominous in that buying on a 10% to 15% market pullback is no longer a given conclusion. We now will wait for more signs that the coming pull back is close to a bottom. Our analysis does not change every other day as you typically see on the NBC/GE/Pravda network.

NBC/GE/Pravda's Jim Cramer reversed himself again yesterday evening. There is nothing wrong with changing one's mind but with him he absolutely destroys investors by whip sawing them. We are going to start tracking Jim Cramer's market analysis using the D OW at the closing before his recommendation.

He said:
Sell May 21 @ 8293 because market leadership was lost.
Buy May 26 @ 8474 because leaders had pulled back 10% and then rose. -2.2% in 2 business days

Last night Asian markets were up sharply. China up 1.7%, Hong Kong up 5.3%, India up 3.8%, and Japan up 1.3%.

European markets are up in the range of -0.1% to +0.4% mid way through their day.

US futures indicate the markets will start off flat again today. Lately optimistic investors are encouraged to buy earlier in the day and funds and day traders then take profits later. The volume yesterday was very low and the market was up early and then it looked like boredom set in.