US markets successfully tested Oct 30 lows and ready to advance again.

Yesterday Federal Reserve Chairman Ben S. Bernanke laid more groundwork for exiting the US record expansion of credit without saying when it will happen. He did give some clues though.

In written congressional testimony, Bernanke described how the Fed will use tools such as interest it pays on banks’ deposits to tighten credit “at some point.” A potential familiar increase in the Fed’s discount rate would be part of the “normalization” of lending “before long” and wouldn’t signal a change in the outlook for monetary policy. The first major control for bring down expansion will be by raising the interest rate paid on funds deposited by banks at the Fed, as well as so-called reverse repurchase agreements that temporarily drain cash from the banking system.

The Fed, in the near term, will not sell the $1.43 trillion of housing debt being purchased through next month but instead will wait at least until after policy tightening has gotten under way and the economy is clearly in a sustainable recovery. Fed officials may decide in the future to sell securities.
Bernanke said they might first test the tools for draining reserves on a limited basis. That may start a pre-mature stock market decline. But as the time for the removal of policy accommodation draws near, those operations could be scaled up to drain more significant volumes of reserve balances to provide tighter control over short-term interest rates.

Congress granted the Fed this power in October 2008 as part of the law creating the $700 billion Troubled Asset Relief Program to then execute the actual firming of policy by raising the interest rate on bank reserves. The first thing that will happen is that there will be a language change, taking ‘extended period’ out” of the Fed’s public policy statement. The changes in the interest rate will be broadly telegraphed.

Bernanke said the Fed might temporarily replace the federal funds rate as a policy guide with interest it pays on banks’ deposits should fed funds become a “less reliable indicator than usual.” The goal is a 3% economic expansion rate this year.


World Outlook

China charges Australian mining firm with having corrupt salesmen that demand bribes and kickbacks. Lets hope they have filmed the proof of corruption before they take them out and shoot them. That must send a chill down the backs of corrupt individuals. Perhaps they will arrest some of Obama's gang from Chicago when they get a taxpayer-funded tour of China. Perhaps the entire ACORN organization can be sent to China to experience true socialist justice when socialists write their own rules and pass their own version of a Constitution.

Markets successfully tested their resistance areas a third time and rebounded again yesterday. Volume dropped slightly as the markets ended about 0.2% lower on Wednesday. The October 30 lows held with a few percent margin and the DOW closed above 10000 again. Now the MSNBC/GE/Pravda can make an about face and pretend the market is strong again. They have been trying to panic investors for the last week. The MSNBC Wall Street lineup of experts are about as "expert" as a herd of buffalo.

We expect the market top for this year is less than four months away. But be wary. The next decline could bring us close to July 2009 lows. That is still too far off to predict. But if the FED begins to tighten at the end of the year the market will likely fall 6 months earlier.
We expect economic signs will show improvement this week.

Coming Week of Market Reports:
We expect more evidence this week that the economic lows are now behind us.
Date Time (ET) Statistic For Actual Forecast Expect Prior Revised From
Feb 9 10:00 AM Wholesl Inven Dec - -0.8 -0.3% 0.5% 1.6% 1.5%
Wholesale inventories unexpectedly fell in December, prompting analysts to suggest the economy may have grown by more than estimated in the fourth quarter.

Inventories decreased 0.8% to $383.57 billion. Wall Street had expected a 0.5% increase in December wholesale inventories. Wholesale sales climbed by 0.8%.

Feb 10 8:30 AM Trade Balance Dec - -$40.2 -$32.0B -$35.5B -$36.4B -
The trade deficit in the U.S. unexpectedly widened in December, reflecting a jump in petroleum imports that swamped an eighth consecutive gain in exports. The gap widened to $40.2 billion during the month, the biggest in a year, from $36.4 billion in November,

Feb 11 8:30 AM Initial Claims 02/06 440K 475k 465k 483k 480k
Initial claims were down this week.
Feb 11 8:30 AM Retail Sales Jan - NA NA NA -
Feb 11 8:30 AM Contin Claims 1/30 - 4538K 4550k 4590k 4617k 4602k -
Seventy weeks of unemployment compensation may be increased to 99 weeks to ease the contraction but that will raise the recorded unemployment rate because the number will be truthful. Throwing people off of unemployment can make homelessness and credit defaults worse.

Feb 11 8:30 AM Retal Sal ex-auto Jan - -0.3% 0.5% -0.2% -
Feb 11 10:00 AM Busins Inven Dec - -0.2% 0.3% 0.4% -
Feb 12 9:55 AM Mich Sentiment Feb - 75.0 75.0 74.4 -



Market forces Feb 11, 2010
All the American markets are still a few percent above its previous 2-4 month cycle low that occurred October 30. The average investor does not know that on a market cash flow basis the market is already technically broken even if the unadjusted "lying" market indices stayed above the October 30 low. When the market rises close to the next high (in 2 to 4 months) they will still not know it is critical time to take profits… but we will. After the next high point the subsequent decline will likely break the old October 30 lows and challenge even the July 2009 low. That would occur with FED tightening and rising interest rates.

Our corrected NYSE cash flow index gave its Head & Shoulder neck breakdown sell signal on Jan 29 when the NYSE (corrected for trading volume) broke through the neckline of a head and shoulders formation and it plunged about 3% below. We expect the coming rally to lift the averages back close to previous highs. That will again mislead most investors into thinking it is safe to buy stocks just when we intend to be selling.

Asian markets were up over night; Shanghai up 0.1%, Hong Kong up 1.9%, India up 1.5, and Japan up 0.3%.

European markets are mixed in the range from -0.2% to +0.8% this morning about half way through their day.

During the first three days this week the US markets successfully re-tested their lows. Now the US markets appear poised to advance. Today US pre-market futures are up about 0.4% at 9 AM EST.