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Big news today !
The bond rating agency Standard & Poor’s downgraded U.S. debt from its current triple-A rating to AA+, a move a government official called “amateur.”

– S&P downgrade –

So it’s official, our country’s debt is no longer superior. S&P lowering our nation’s debt is a big event. This has NEVER happened before in our history. However, we also need to recognize that S&P rated those worthless subprime mortgages AAA in 2007. With this is mind, how reliable are these ratings anyway ? If the AAA rated stuff went bust in one of the greatest failures of all time, what does AA+ mean ? Whatever the case, we think that the U.S government will strike back and show S&P whose the boss.

It doesn’t make sense that the greatest military power and economy in the world has to accept a debt downgrade. The FACT is, if our government decides to take over another country, steal all its resources and pay off our debt, we can. We just choose not to do so. This act by S&P is stupid and they will pay for it in multiples. How about a terrorist attack on the S&P headquarters ? Unlikely, but we’re just saying. . .

Week in review

In Wednesday’s update, we stated “If the picture gets worse by further price decline, then we can confidently say that a recession has begun and it is time to get very defensive”

The S&P collapsed as expected and has confirmed our forecast. The next recession has started and it is time to get to safety. If action is not taken soon, you will deeply regret it. This week wrapped up a near perfect wave 3 closing at 1199.38 today. Perhaps a little more decline will follow next week, but all the stock market indexes are sitting at extreme over-sold conditions, which is good grounds for the start of a retracement rally. If or when this starts, will be a wave 4 rise. Under Elliot wave analysis, wave 4s are usually choppy and volatile. The next rally should be characterized by uncertain news and media noise.

Any rally, as of now, will present SELLING opportunities ! Begin to get out of all your stock and mutual fund investments, as well as, your investments in precious metals, commodities, and oil. Keep in mind that the stock market’s reflection of a coming recession does take time to unfold. A physical recession in the economy usually offers 6 – 8 months after such stock market signals. We will meander lower over a period of months before the public recognizes the fact and begins to panic. 2012 and 2013 should be rough years as suggested by the stock market action thus far.

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Mid-week Update

In Monday’s preview, we stated “the alternative scenario is that the TOP of the stock market has occurred and the next recession has begun and is in its early phase. This will require some more convincing price declines in August accompanied by confirming sell signals from our technical indicators. A price break below the 1250 zone in the S&P will make this scenario the primary forecast.” Speaking of the devil, the price move thus far is extremely ideal for our Bearish forecast scenario. The S&P collapsed on Tuesday and today, which fits our wave 3 scenario.

The S&P marked its low today at 1,234.56 before bouncing sharply to close at 1260.34. The S&P’s 1250 benchmark was broken today, but did not confirm the break by closing below 1250. This means that we have an opportunity to begin a rally from here. With many short term technical indictors in oversold territory, there is a good chance that a rally of some kind will begin here. If the picture gets worse by further price decline, then we can confidently say that “A recession has begun and it is time to get very defensive.

Furthermore, if a rally starts here at the S&P bullish trend-line, then it should be choppy one. The rally, if / when it starts, will be a wave 4 retracement, which is usually a lot of random up and down days that result in only a slight price rise. Friday should end up being a telling day, stay tuned . . .

News

Not too much to pay attention to aside from the debt sealing debate. Interesting to see that the largest credit rating agencies are threading to lower the US debt rating away from AAA. This act of foolishness is no different than a kindergarden child threating to lower his teachers salary. If this were to happen, the US government should storm the offices of Moody’s or S&P and show them whose boss. Aside from this cruder rating nonsense, the economic numbers from last month are rolling in, we should see great volatility throughout this month.

Week in Preview.

At this immediate stock market juncture, we are mainly tracking two separate scenarios. Elliot Wave analysis suggests either the stock market is finishing up on a normal price correction or the stock market TOP is in and the first decline into the next recession has started. It’s hard to tell at this exact moment, but we expect August to be the month that will clear up this tug-of-war. The first scenario assumes that the S&P is in a wave 4 correction and will experience one last rally to the old highs.

The alternative scenario is that the TOP of the stock market has occurred and the next recession has begun and is in its early phase. This will require some more convincing price declines in August accompanied by confirming sell signals from our technical indicators. A price break below the 1250 zone in the S&P will make this scenario the primary forecast. If this forecast is in play, we should see a violent decline to illustrate wave 3 – which is always the most violent price move – in the early part of this month.

If the S&P confirms the alternate bear scenario, then things will get pretty gloomy. This will be an obvious forecast after the facts and will be easily identifiable by month end. The key is that if the S&P closes below 1250, it would be best to at least lighten up on your stock holdings. If confirmation[ occurs]], people should move their investments into cash equivalents. Gold will not be an alternative to stocks because everything will depreciate in value during the next recession.

The debt-to-GDP ratio is one of the indicators of the health of an economy. It is the amount of national debt of a country as a percentage of its Gross Domestic Product (GDP).

With all the media talk on our nation’s debt problems, it is important to realize that we are, IN FACT, not in as bad of shape as most people think. Compared to our nation’s own history, we are in horrible shape. However, comparing to the rest of the world, we are actually in pretty good shape and still have room to slide down the rabbit hole before we face our demise.

Compared to other world governments, we are in the tail end of government debt quantity. What do you mean the U.S is going bankrupt and will default on its debt ? Zimbabwe has 5 times more debt than we do, while Japan has nearly 4 times more, shouldn’t we be worrying more about the countries’ that severely rival us in debt rather than to focus in on how we’re doomed ?

Interest is the incentive for one to lend his belongings to another. Interest is your friend if you are the lender. However, interest is your foe if you are the borrower. In our country, we are the largest borrower. This week’s chart illustrates how “compound interest” works. If we don’t start embracing the pain associated with debt repayment, we will eventually be buried by the interest.

The pains of repayment will echo through our economy, but will save our nation’s future . A smaller amount of pain now or a ton of pain AND regret later ? What do you think ?

Technical Analysis is displaying a setup that is rare, yet highly reliable. Something is brewing in our country that will result in massive upheaval. The common man sits clueless thinking that our country is back on the road to prosperity. Please don’t end up being among the majority that looses their livelihood. Let us help you protect your future and your family.

Week in preview

- S&P Monthly chart -

The monthly SPX chart triggered a sell signal in May. Since then, the S&P has moved sideways with huge volatility. The May sell signal has grown more solid and will confirm if the index moves below 1250. The long term charts are tell us to be careful.

- S&P Weekly chart -

The weekly chart has also triggered a sell signal. Price has broken below the primary uptrend line and has also back tested the trend line without in a convincing technical trend retest. The weekly indicators are also on a sell signal and is showing no signs of a turn. Furthermore, a price break below 1250 will complete a Head and Shoulders formation, which is usually a reliable technical. The midterm chart is telling us to be careful as well.

- S&P daily chart -

The daily chart fits a convincing Elliot Wave formation. This will require the index to approach 1350 one last time before a reliable sell signal can be considered. Major tops always take time and volatility to form, which makes the daily chart consistent with the monthly and weekly charts.
Forecast / game plan

Minute chart

This week should resolve the positive side according to the minute charts. The S&P is sitting at its maximum price retracement point for wave 4.   A rally should begin shortly, probably early this week or tomorrow. This is a minute level wave 5, so price will appear explosive. The index will peak at or near 1350 by week end or early next week. Upon the price target being satisfied, a decline will start, which should be accompanied by news or a political event. Short term traders can enter “long” immediately and liquidate at 1348 or 1347.5.

Keep in mind, this week may end positively, but the bigger picture shows something brewing in our society that has not been announced to the public yet. These types of parallel chart formations usually occur when the governing powers begin to acknowledge a problem and proceed to offload their own investments to the street. Are you prepared to rush to the exit when the club owner screams FIRE or will you see the smoke and leave first?

Let us help you navigate through this crowd of unsuspecting people and save you a spot by the exit. Everything is setting up in parallel with history. Become a subscriber today!

So you thought that US real estate has bottomed and is about to recover. This week’s chart forces us to think again. We have featured the longer time frame picture of this chart in the past, but here is the closer look. Notice how all the junk mortgages are about to reset; all the no doc / no income / no proof of responsibilities mortgages are positioned to rest in masses. This means that all the 1% teaser rates that tricked people to buy are going to rocket up to 3 or 5%. How about doubling your mortgage payments starting next month Investment property ? Yeah, right !

“You will be paying only 1% interest on your mortgage for the first 5 years”

5 years have past and it is time to face the beast !

News

Consumer price inflation softened in May on a decline in energy costs. The consumer price index in May grew at a 0.2 percent rate, down from 0.4 percent in April. The latest figure, however, came in higher than the consensus forecast for no change. Excluding food and energy, the CPI jumped 0.3 percent, following a 0.2 percent rise the month before. Analysts had forecast a 0.2 percent increase.

- Economic Reports Calender –

It’s official, the housing crisis that began in 2006 and has recently entered a double dip is now worse than the Great Depression.

Full Report ~ Housing situation

Violence in Athens and the failure of European leaders to resolve their disagreements over the Greek debt crisis crashed the global markets on Wednesday. The Greek debt crisis is growing into a serious problem.

Full Report ~ Greek debt crisis

Midweek update

Fear is flooding the public and is getting over done. There will be a sharp rally that will push out all the weak “shorts” soon. Given this situation, we should begin to watch for signs of capitulation and refrain from following the crowd that’s jumping out the window.

The target in the S&P is around the 1230 level and we are close. The strategy should be to watch the weekly chart and begin to position upon an oversold reading in the indicators

The bonus chart is the XLF. A one day island top formed today. This is a reliable formation saying a top is present. We’ll see . . .

News:

A few potential market moving news this week beginning with Retail Sales on Tuesday. Wednesday presents CPI followed by Housing Starts and Jobless Claims on Thursday. With the negative social mood, good news can be perceived as bad and vice versa. This week’s news issuance may be the kick to cause market capitulation.

- Economic Reports Calender –

A lot of negative news and publicity have hit the news stream. The news seems to be geared toward government related conflicts. Could the authorities be setting the stage for the 2012 elections ?

Full Report ~ Government messages

It is uncommon practice for the guys at the top to scare the public before elections, but could the strategy be changing this year? What if the coming election campaign is composed of shock and awe tactics ?

Full Report ~ Government messages

Week in Preview

The broader market indexes are all looking worse and worse as each day goes by. Examining the S&P daily chart, we can see that price is oversold, but still quite far from the next level of primary support around 1220. No solid signs of bottoming have presented yet, as price continues to edge lower. The 200 day SMA is at 1254 and should contain this harsh decline. If the 200 day SMA is broken, then the next target will be primary support at 1220, where a few trend and price support converge.

The weekly S&P chart is telling us that price has further to decline. Price is not oversold yet, so there is more room to move lower. The weekly chart has price targets at the 1231 level before a bounce or bottom becomes plausible. Notice that price decisively broke below the important support trend line and the next support level is around the 1230 level.

The monthly chart has developed into an ugly setup. The monthly stochastics have turned down and this indicator has been quite reliable over the past few years. However, MAJOR tops do not peak and go straight down, so we should expect some gyrations before things really get ugly. The main thing we can conclude from the monthly chart is that a TOP is forming, but should not complete for another few months.

Finally, we are convinced that a significant TOP is currently forming now and will take a few months to complete. This conclusion was determined by the fact that many leading market sectors have declined substantially and have broken below their 200 day SMA. It is clear that the professionals have rotated out of their position holdings and have sold out in a organized manner. The next event will be a rally that will transfer the risk to the common investor. All the leading market sectors – banking (BKX), broker deals (XBD), home builders (ITB), and the financials (XLF) are weak and about to trigger a death cross (50 day crosses 200 day). These sectors were the leaders that lead the economy out of the 2009 lows and have lead the market higher since. If these sectors have turned and big money has left, will the broader economy follow ? Is something ready to happen that the public is blind to still ? These are the signs that suggests a MAJOR TOP is forming NOW !

Banks

Broker/Dealers

Home Builders

Financials

Conclusion

The stock market indexes is likely to drift lower until the next major support zone is met. All the market leading seculars MAY have topped, but the upcoming rally will act as confirmation.

Debt deleveraging is a key characteristic of recessions and bad economic times. The postponing of temporary recessions will always lead to serious outbreaks of depressions later. This is a very logical observation and would be the only outcome that makes sense.

Given that no debt reduction has occurred at all, we can assume that the real downturn hasn’t even really happened yet. The economy has suffered for over 10 years and the real pain has not even started.
Today’s chart shows the debt acceleration and reduction during the 1930s depression. In comparison to today, we are nowhere near the end of tough times. Maybe the taking responsibility for our actions and problems is what our nation needs.