June 4th and June 7th Open a New Series of Nasty Windows for Stock Market Implosions

by John Galt

June 4, 2010

There are ten reasons for my concerns about the next two trading sessions:

1. If there is any disappointment in the Unemployment report, BOOM.

Weekly unemployment claims on a seasonally adjusted basis have remained stubbornly over the 450,000 mark. Historically that has indicated that there is no real jobs growth occurring despite the spin mobile being projected by the MSM, politicians, and financial press. The moving average has also remained above this level and as  you can see here:

the 4 week moving average (SA) is remaining stubbornly above the 450,000 level as the NSA weekly claims remains above the 400,000 level. The other “unexpected” part of this morning’s reports was the spike in extended benefits:

With the ADP report somewhat weak and ancillary evidence with some rather large layoff announcements in May, it will be a sight to see in the morning if that U-3 numbers come in anywhere under 300,000 jobs created. This means the birth/death model could jack up north of 150,000 new computerized digital ghost jobs if the politicians fear a problem or better yet, force the B/D number back to the norm so they can enhance the crisis so they can take further actions politically before the electioneering begins.

2. The markets have built a very nasty pattern and failed to re-acquire the top end of their range with a massive failure today on light volume.

The S&P 500 attempted the 1105 level and failed on fading volume. If you notice the volume trend since the last major down move at the bottom of the chart above, it has been declining with each day and especially so during the past two “positive” market days. The failure to regain 1120 and the movement of the 5o DMA indicating a potential DEATH CROSS in the next 60 days are all negatives and the market should roll over here. In the long term they are praying that the support level of the GOLDEN CROSS last year holds just below 900 or this sucker is going downtown and hard this fall. The DJIA indicates the same thing:

3. Yesterday’s action was primarily short covering due to spook rumors about a massive central bank intervention in Europe and the U.S. which has yet to materialize.

There were mumblings and rumblings about a concerted effort to stave off any more failed bond auctions and to support the Euro to get it back above 125. So far, nothing appears to have materialized but if they tried, it failed badly.

4. CDS spreads are blowing out again on Sovereign Debt.

From CMA Datavision Market Data:

5. Euro rally fizzled going up on light volume.

The move towards 125 failed, on light volume, and now looks to crater below 120 WITH volume.

6. Gold fell but consolidated ABOVE $1200 PER OZ.

As long as gold remains in a range between $1150 and $1250 in a consolidation phase, the market is priming for a huge move in the fall. The timing

7. 1-3-6 warning

The 1-3-6 rule is in full force and the 1 month bill broke hard to the downside at the close on 6/3 dropping from a 0.14% to 0.09% yield. Over the long term, none of the bills have yet to recover above the 0.25% yield level, much less recover to normal, non-recessionary economic era yields. This is a flashing warning signal that the markets could indeed crater with very little motivation or notice.

8. BOR warning

Two stories…..all that needs to be said:

Euribor soars as banks clamp down on lending

Interbank Lending Market ‘Died With Lehman’: Chart of the Day

and here is the chart from the latter article:

9. GS flunked its test.

The failure to break 145 on a weak rally means 140 should not hold and a break down into the 120’s, perhaps even the 110-115 range is imminent. The U.S. equity markets always follow GS as it is the new bellwether.

10. Russell 2000 failed at 670.

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