Has FDIC Run out of Funds to Close More Bankrupt Banks?

By: Anthony_Cherniawski

No new entries on the FDIC Failed Bank List.  What gives?

U.S. stocks fell, capping the market’s first back-to-back weekly declines since July, as a bigger-than-estimated loss of jobs and a drop in factory orders spurred concern the economy is struggling to recover.

News from 1930.

Market wrap: “Remorseless” drop in market that had run for six consecutive days was broken by strong rally, attributed to support finally coming in for main trading shares and to short covering. Market improved from the bell, opening at 206.16, up from 204.90 at Tuesday's close. Rally gained breadth as session wore on; US Steel and American Can led the rally; GE, Westinghouse, Allied Chemical, other majors also participated vigorously. Oils strong with Standard of NJ leading; trading favorites including Gillette, Worthington Pump, J. I. Case sharply higher. Volume moderately heavy but lower than Tuesday and fell off in afternoon; major stocks maintained gains and rose to day's highs in final hour. Bond market opened down but improved to close generally higher; foreign markedly stronger, convertibles up, corp. up narrowly; Dow 40 corp. bond avg. at new 1930 high of 97.70.

The VIX is a penny shy.

--The VIX rallied strongly today, but stopped a penny shy of a breakout in the daily charts.  The weekly chart shows it adequately enough. It closed for the week above Critical Support/Resistance at 25.80.  Today’s action suggests a pickup in activity on Monday, especially with the weakness shown in equities all day.

The SPX begins its decline.

--SPX reversed smartly this week.  The action today is very suggestive of a re-enactment of the gap down we had a year ago coming on Monday morning.  The Support/Resistance line, which defined the lows in 2004 at 1060.72 held.    My preliminary target for this wave down was 1000.  However, due to the action that we have seen so far, it is more likely that Model support at 950 may be a more likely target.

And the NDX follows.

--The decline in the NDX gained momentum on Wednesday and once it dropped through support levels, it could not get back above.  Today was a case in point, where the traditional Friday rally was expected but could not materialize.  It appears that the big guys were too busy selling to harass the shorts.  Knowing the condition of many of the institutions that have had their prices run up in the past six months, who would want to buy and hold over the weekend?

Gold could not retrace beyond the Fib levels.

-- Gold made a second reversal pattern this week (not shown) after unsuccessfully attempting a rally.  This is tantamount to another sell signal in gold.  Most gold enthusiasts won’t see anything wrong with this pattern until gold declines past the apex of its triangle.    The model suggests a visit to 750 at a minimum in this decline.

Oil adds “unexpected” to its vocabulary.

$WTIC had quite a surge this week that gives volatility a bad name.  However, it did not rally beyond what are considered normal retracements.  That makes it ready for a very substantial drop next week.  It tested support at 68.02 today.  Once below, I expect to see some acceleration.  The initial target for this decline will be 60, but I expect that to be just the start.

$BKX reversal is now evident.

The silence from the FDIC is shouting that something is amiss.  Is it possible that it just doesn’t have enough reserves in their Deposit Insurance Fund to close any other banks?    Georgian Bank was a stunning loss to the FDIC.  And it wasn’t even on the “troubled” list.  Where does that leave the depositors at other banks?  I just changed the bank I use for my business for that reason.

The Nikkkei is back.  Shanghai is on vacation.

The Nikkei index also has a clean break to the downside.  If this is a bearish wedge, the March lows may be revisited in very short order.

$USB makes another push in its retracement rally.

-- $USB made another push higher this week, but may have topped out today.  I exited TLT last week because of apparent divergences between the two, which resolved higher for both the index and ETF this week.  Will we see another push up next week?  The pattern appears to be a double zig-zag, which may have ended today.  Monday will clarify the pattern, IMO.

The $USD not going lower, nor higher.

--Jesse Livermore said a lot about being patient and letting the pattern develop.  Patience is something I don’t have a lot of, but maybe this is a teachable moment.  This pattern took its time developing and there’s a lot of pent up energy stored in that wedge, so I believe that those properly positioned will be amply rewarded.

   I hope you all have a relaxing weekend!

Regards,

Tony

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