30-Yr. Mortgage Rate: New Low

The average rate on a 30-year fixed mortgage has fallen to its lowest level on records dating to 1971. The rate on the most popular mortgage dipped to 4.15 percent from 4.32 percent a week ago, Freddie Mac said Thursday. Its previous low of 4.17 percent was reached in November.

The last time long-term rates were lower was in the 1950s, when 30-year loans weren’t widely available. Most long-term home loans lasted 20 or 25 years.

via DANIEL WAGNER 30-Yr. Mortgage Rate: New Low.

Dow threatens support

The Dow Jones Industrial Average fell sharply on Thursday, accompanied by strong volume. Failure of support at 10700 would complete the dead cat bounce, offering a target of the 2010 low at 9600*.

Dow Jones Industrial Average

* Target calculation: 10800 – ( 12000 – 10800 ) = 9600

Loonie turns

After breaking its long-term rising trendline against the greenback, followed by primary support at $1.01, the Canadian Loonie is testing resistance at $1.02. Weak economic data should increase selling pressure. Reversal below $1.01 would confirm the down-trend, offering a target of $0.96*.

Canadian Dollar - US Dollar

* Target calculation: 1.01 – ( 1.06 – 1.01 ) = 0.96

US debt shrinkage slows

Having fallen by almost $1 trillion since its peak in 2009, the decline in US bank lending is slowing, with the annual rate of change approaching zero. A stable level of debt would reduce deflationary pressure and signal that residential and commercial real estate prices are bottoming.

US Bank Loans Leases and Securitised Loans

Most of the money pumped into the economy over the last year leaked straight back out, with excess bank reserves deposited with the Fed rising by more than $500 billion.

US Bank Assets

Michael Barone: The Fall of the Midwest Economic Model – WSJ.com

So what does the president have to offer the Midwest? The idea that the wave of the future is an ever-larger public sector financed by a more or less stagnant private sector looks increasingly absurd. The Midwest’s public sector has, as Margaret Thatcher put it, run on “other people’s money.” Meanwhile, Mr. Obama’s trip to the Midwest has been preceded by Texas Gov. Rick Perry’s foray into Waterloo, Iowa. Mr. Perry points out that his state, with low taxes and light regulation, has been producing nearly half of America’s new jobs.

via Michael Barone: The Fall of the Midwest Economic Model – WSJ.com.

What a real bounce looks like

Question from Flint:

If this is an example of a dead cat bounce then what would we look for in a real bounce… .

The best example I can find is the mini-crash of October 1997. The Dow gapped down sharply following a fall in Asian markets, but met with strong buying support the next day. The total correction of 12% did not reach the 6400 level from start of the year. The long-term rising trendline was not tested and 63-Day Twiggs Momentum declined but failed to break below zero. Volume doubled in the week following the crash, confirming buying support.

Dow Jones Industrial Average 1997 Mini-Crash

The 2011 crash is not specific to one region as with the 1997 Asian crisis. The index had not made much progress for the year and the fall of 17% broke well below the starting level of 11500. The long-term rising trendline was breached and 63-Day Twiggs Momentum dropped sharply below zero. Volume doubled in the week following the crash, as in 1997, but this is a completely different scenario: it would take similar volume for 4/5 successive weeks to stop the bear market in its tracks.

Dow Jones Industrial Average 2011 Crash

TSX evening star

The TSX Composite retraced to test the new resistance level at 12750. Declining volume and Friday’s red candle warn that buyers are losing interest. Reversal below 12400 would complete an evening star candlestick reversal.

TSX Composite Index

* Target calculation: 11600 – ( 12800 – 11600 ) = 10400

Dead cat bounce

We have a clear bear market signal across a wide range of indexes and current behavior is typical of the early “Denial” stage. If we look at 2008, the Dow broke primary support at 12800 in January, falling sharply before encountering strong buying support at 12000, signaled by weekly volume over 1.5 billion [1]. The rally failed, but buyers again snapped up bargains, with weekly volumes [2] above 1.5 billion. A third rally even penetrated resistance, but buyers soon lost interest and the next down-swing [3] led to a strong bear market over the next year.

Current buying support, with weekly volume close to 2 billion [4] is typical of the first stage of a bear market . Expect a rally to test 12000 followed by another test of  support between 10600 and 10800.

Dow Jones Industrial Average

* Target calculation: 10800 – (11800 – 10800 ) = 9800

Friday’s doji candlestick on the S&P 500 Index indicates hesitancy, and 21-Day Twiggs Money Flow below zero warns of selling pressure. Breakout above 1200 would indicate a similar rally to test 1260, but reversal below 1100 would signal another down-swing.

S&P500 Index

* Target calculation: 1125 – ( 1250 – 1125 ) = 1000

The Nasdaq 100 Index displays stronger buying support, as evidenced by the long tail and small bullish divergence on the weekly chart. Expect penetration of resistance at 2200, but the primary trend remains downward and reversal below 2200 would confirm.

Nasdaq 100 Index

* Target calculation: 2200 – ( 2400 – 2200 ) = 2000

For those who follow classic Dow Theory, the Transport Index broke below 5000, confirming the bear market. 63-Day Momentum further strengthened the signal with a strong fall below zero.

Dow Jones Transport Average

* Target calculation: 5000 – ( 5600 – 5000 ) = 4400

Canadian Loonie

The Loonie fell sharply against the greenback before finding support at parity. Currency markets are volatile at present, evident from the wide consolidation between $1.00 and $1.025. Downward breakout would signal a decline to $0.94*, while recovery above $1.025 would indicate a rally to $1.06.
Canadian Dollar CAD

* Target calculation: 1.0 – ( 1.06 – 1.0 ) = 0.94