The Market Has Spoken

The chart above is that of Consumption in Non-Durable Goods
divided by Durable Goods.

The Durable Goods are closely associated with large ticket items
that promote economic growth. The ND Goods are closely related
to indispensable items such as food and energy.

I have been pointing for over a year that with the increase in
food and energy prices, consumption in discretionary item would
drop and cause economic slack.

There has been no help from the government stimulus package:

With tax rebates reaching the consumer, we have seen
consumption in Non-Durable increase and consumption in
Durable Goods decrease.


The chart above is that of Core Capital Equipment Orders as
percent of Durable Goods Orders.

CCE are considered a proxy for Business Investment.

This percentage has been climbing demonstrating that Businesses
are in much better relative shape than the consumer.

Notice also that it reached 30%, a level from which I think it will
soon start declining.

This suggests that one should avoid consumer stocks and also
expect that the business sector of the economy should follow the
consumer into recession as I mentioned (click)here.


Courtesy BigCharts.com

The firs line that I drew a few days ago as target for the S&P
helped for one day:
The market bounced off 1304. Then it broke through it with a huge
drop. This line will now become resistance on the upside.

I use these lines to anticipate support/resistance levels for the
market using the mid-point of the counter-rally(1348) as a point
through which a line originating from previous extremes should pass.

The other two lines are equally valid as short term targets. I
provided two very similar lines since picking entry points is a lot
of art and a little science. Two lines will let your "artistic"
part do the choosing.

The market has spoken in favor of what I have been saying for a
year: We are in a onerous economic position that will continue
to deteriorate.