Today’s GDP top line number was 0.6%. Had the data been calculated with real world inflation data, then the data would have been much worse. It is still mind boggling how the Government calculates inflation, and how they are able to claim it remains in control. You know I have written about this subject in the past, and tonight Chris Puplava of Financial Sense did an excellent analysis of this subject. It is well worth a read. Check out his commentary; An Inconvenient Adjustment.

Last night I wrote that the market was resembling a herd of sheep being corralled into a tightly packed room, trading right up at resistance levels. And the question was which door would open. The answer became clear after the FOMC announcement at 2:15pm today, it was the back door that opened and the sheep ran out the back.

(SPY - 1 Minute Intra-Day Chart for April 30 2008)

In the chart above, observe how at the time of the announcement there was significant confusion. But as the FOMC statement began to be digested the bulls started getting cold feet and started to sell, and sell they did. See how the volume on the selling was strong. So the bear market trends remain intact.

On the charts below, the Dow and the S&P 500 are still in the bear trend. On the S&P 500 there is a multitude of resistance zones, which are still keeping the market in a bear trend.

(DOW - Daily Chart)

(S&P 500 - Weekly Chart)

(S&P 500 - Daily Chart)

In the S&P 500 daily chart shown above, we are comfortable with shorting the S&P 500 at this time. The best entry would be to wait for a re-test of the resistance level one more time. After the sell off today, it is likely that a reaction bounce may be attempted. In that situation, the resistance levels shown in the chart above would be tested one more time. As long as that resistance level holds, then that would be an ideal opportunity to take a short position on the S&P 500. The risk is kept to a minimum because we have a clearly defined stop out point, which is the resistance level. One idea would be to buy the SDS (Proshares UltraShort). It is important to remember that any trade we recommend here is for no more than 10% of your entire trading capital. NEVER place all of your money in any one trade. The key to winning the market is to not lose at the market. No one will ever have a 100% success rate in trading, which is why capital preservation is so important. 10% is the absolute maximum you should ever place on a trade, no matter how confident you are in it. For new traders, you should start out with no more than 5% of your total trading capital. Oh, and one other thing… NEVER use margin on your trading. Margin has put too many traders into the poor house. Play only with what you got, nothing more.

Yesterday we provided the Apple (AAPL) chart and provided the ideal setup for a short trade. If any of you grabbed it you have done well. The trend line on the Apple chart in yesterdays commentary is your stop loss point. Do not chase it if you did not grab it already. Chasing trades is another aspect of trading that is a no-no. Never fret over a trade that slips by you, there will be many more to come along.

The financial sector has been the center of much attention in the media lately. Many analysts are claiming that it is time to load up on the financial stocks (banks, etc). I still see longer term danger for the financial institutions. Personally, I do not intend to trade any financial stocks at this time. I show the XLF financial sector chart here again.

(XLF - Financial Sector - Daily Chart)

One final chart to show you tonight is the world index. Just as the US markets have been running right up to resistance, so to has the world index. This chart tells us that the path of least resistance is to the down side for global markets.

(MSCI world - Monthly Chart)

A topic I wanted to discuss last night, but ran out of time, was the impact of the economy as it relates to health care. The Kaiser Foundation released their latest survey of impacts of the economy on the average person. This data highlights how medical needs are being put on hold or canceled due to the rising costs. It is a sobering report.

(Data from Kaiser Foundation)

The full article can be found HERE. (requires Adobe Acrobat Reader to view, a free software program usually installed on most computers).

We still view the economy as worsening. The stock market, as we see it at this juncture, is poised for a new leg down. There is still a lot of economic data tomorrow and Friday. But, in the long run we still see the economy and the markets heading lower. We still pay close attention to resistance levels and we don’t hold a trade if the stop out point is reached.

We remain bearish on the market.

See you in the morning..

After the initial reaction to the Fed announcement, which was almost a non-reaction, the market shot up to resistance, hovered and fell.  Distribution was taking place, and some confusion for many, no doubt.  The Fed’s are apparently going to stop cutting rates for awhile, but they continue to promise to respond when needed to help the credit markets (banks).  We’ll have more analysis on the Fed decision and other economic data tonight.  The fun isn’t over, as we still have two more days with major economic data and earnings reports. 

The indices closed in the red.  Not a huge rout, but not a signal of strength, either.  I watched CNBC for just a few minutes, for reaction to the Fed stuff, and the anchors were gushing about how we could possibly close over 13000 on the Dow.  Oy, where do they find these people.  Gold found some legs and the US dollar didn’t.  Many commodity stocks simply ended up right back where they started this morning.

FOMC statement excerpt:

Recent information indicates that economic activity remains weak. Household and business spending has been subdued and labor markets have softened further. Financial markets remain under considerable stress, and tight credit conditions and the deepening housing contraction are likely to weigh on economic growth over the next few quarters.

Although readings on core inflation have improved somewhat, energy and other commodity prices have increased, and some indicators of inflation expectations have risen in recent months. The Committee expects inflation to moderate in coming quarters, reflecting a projected leveling-out of energy and other commodity prices and an easing of pressures on resource utilization. Still, uncertainty about the inflation outlook remains high. It will be necessary to continue to monitor inflation developments carefully.

FOMC CUTS RATE 25 BPS TO 2.00%; DROP REFERENCE TO DOWNSIDE GROWTH
- Economic activity remains weak
- Vote was 8-2 for cut (Fisher, Plosser dissented, preferred no change in rates)
- Uncertainty on inflation outlook remains high, labor markets have softened, financial markets under considerable stress
- Notes the substantial easing of monetary policy to date should help promote moderate growth over time
- Inflation seen moderating but will monitor carefully

JAN. CALIFORNIA GASOLINE CONSUMPTION -4.5% - WIRE CITES STATE TAX BOARD

And they said it couldn’t happen.  "They" said American’s would never cut back, and personal consumption spending would not slow down.  I guess "they" was wrong. 

The NY Fed will conduct $25 Billion 29-day TSLF auction May 1st., accepting schedule 1 collateral (whatever constitutes "top" collateral these days).  $5 Billion will be the maximum award.

The markets are basically on hold until the Fed rate cut decision in less than an hour.

Volume is low in seesaw trading this morning.

Dept. of Energy numbers:  (These numbers may get people excited in the short run, but really they are nothing new or exciting)

CRUDE:+3.85M  V +1ME;  GASOLINE:  -1.48M V -750KE;  DISTILLATES: +1.13M  V UNCH. EST.;  UTILIZATION:  85.4 % V 85.9%E
API:
- Crude:  +1M
- Gasoline:  -3M
- Distillate: +2M

In other news:

NO REVISIONS TO US MARCH OR FEB RETAIL SALES
- March remains +0.2%, Feb remains -0.4%

US TREASURY’S RYAN: TREASURY IS WORKING WITH FED ON DEBT MARKET LIQUDIITY - QUARTERLY FUNDING BRIEFING
- says foreign interest in US assets remains quite robust  (Robust?  Guess Ryan isn’t looking at Treasury auctions)

US TREASURY OFFICIAL: TAX SEASON RECEIPTS HAVE BEEN ‘QUITE SOLID’  - Quarterly Briefing (I don’t know what to say about that!)

Advancers outpace decliners by a hair on low volume.  Mostly seesaw trading this morning, directionless, really.

Q1 Advance GDP

The top line number was ‘unchanged’. Remains at 0.6%. My projections were for -0.2 to +0.2, let’s see who is right when the revisions are in next month. Aside from that, the data shows us that the economy is still contracting. Exports are the only thing that kept the GDP elevated, and that was an increase due to the ever weakening US dollar value. I look at this as a recession inside the United States with data artificially inflated due to foreign sales of our wheat and corn at higher prices.

The reaction in the futures were to the upside, however they stopped at resistance, again. At this time I can not say what open market trading is going to look like. Remember, that we will cover shorts on the S&P 500 breaking above 1410 on heavy volume. If I had to take a ‘gut feeling’ here, I would say that the market is not going to rally as much as people may think, trade sideways or down until the FOMC data at 2:15pm today. Very tough call here. My personal analysis of the GDP data is it reflects a clear recession within the US, I am not impressed with the number being equal to the last quarter.

Moody’s economist sums up the GDP Data this way:

• Real final sales of domestic product, which is real GDP minus the change in inventories, fell 0.2% annualized in the first quarter, down from 2.4% growth in the fourth quarter. This was the first decline in final sales since the fourth quarter of 2005. Final demand is very poor.
• The number of positive factors for growth is shrinking. In the first quarter, positives included consumer spending on services, inventory investment, exports and federal government spending. On the negative side residential construction continues to drop sharply, consumer spending on durable goods fell and imports increased; higher imports reduce GDP.
• Inventory investment was a positive for growth in the first quarter, while it was a negative in the fourth quarter. Offsetting this, relative to the fourth quarter, was a decline in real consumer spending on goods, higher imports and a decline in non-residential construction.
• Housing remains a major weight on growth. Real investment in residential structures saw another large decline, falling 27% on an annualized basis in first quarter, compared to a 25% drop in the fourth quarter. Residential investment subtracted 1.2 percentage points from growth in the first quarter. However, the drag was slightly smaller than in the fourth quarter, as the importance of homebuilding to the economy has declined. Residential investment has now contracted for nine straight quarters and is down one-third from its peak.
• Business investment excluding inventories fell 2.5% annualized in the first quarter, the first decline since the fourth quarter of 2006. There were declines in investment in non-residential construction and equipment and software, subtracting 0.3 percentage point from growth. However, a positive contribution to growth from inventories, of 0.8 percentage point, prevented an outright decline in overall business investment. This is a reversal from the fourth quarter, when inventories fell and other types of business investment increased. Overall business investment, including inventories, added 0.5 percentage point to growth, compared to a 1.2 percentage point drag in the fourth quarter.
• Growth in real personal consumption expenditures rose just 1.0% (annualized) in the first quarter, down from 2.3% growth in the fourth. This was the weakest growth in real consumer spending since the second quarter of 2001, in the middle of the last recession. PCE added just 0.7 percentage point to growth in the first quarter, less than one-half of its contribution in the fourth quarter. Real spending declined for both durable and non durable goods. The drop in spending on non durable goods was the largest since 1991.
• Exports of goods and services rose 5.5% annualized in the first quarter, compared to a 6.5% gain in the fourth quarter. Imports of goods and services rose 2.5% annualized in the first quarter, after a 1% decline in the previous quarter; an increase in imports is a negative for growth. Overall, net exports of goods and services added 0.2 percentage point to growth in the first quarter, after adding 1 point in the fourth.
• Total real government spending rose 2% in the first quarter, the same pace as in the fourth quarter. Federal spending was up strongly, especially for defense. State and local government spending grew 0.5% at an annualized pace in the first quarter, the smallest increase since the third quarter of 2005. Overall, government added 0.4 percentage point to growth in the first quarter, the same as in the fourth.
• The overall GDP price index saw a 2.6% annualized increase in the first quarter, compared to a 2.4% increase in the fourth quarter. Higher energy prices continue to contribute to accelerating inflation.
• Consumer prices measured using the personal consumption expenditure price index rose 3.5% annualized in the first quarter, down slightly from 3.9% in the fourth. Again, higher energy prices are contributing to strong top-line inflation. The Federal Reserve’s preferred inflation measure, the core PCE deflator, which excludes food and energy prices, was up 2.2% in the first quarter, a slowing from 2.5% inflation in the fourth quarter.

After the GDP data was released the S&P futures ramped up to resistance and have been since pulling back slightly.

(S&P Futures - 15 minute chart)

Bottom line: The GDP data was not able to break resistance. Open market trading will be very interesting.

Wall Street Journal reports tonight…

Bair Proposal Seeks
Government Loans
To Aid Homeowners
By DAMIAN PALETTA
April 29, 2008 7:46 p.m.

WASHINGTON — Federal Deposit Insurance Corp. Chairman Sheila Bair is finalizing a legislative proposal that would allow the Treasury Department to make direct loans for close to one million homeowners in the latest government initiative to stabilize the slumping mortgage market.
The plan would authorize the new government loans so that borrowers could pay down up to 20% of the principal they owed on their mortgage, according to a confidential draft of the plan obtained by The Wall Street Journal. That would mean that if a homeowner owed $100,000 on a mortgage, the government could loan up to $20,000 to pay down the principal.

[...] According to the draft, borrowers would still be required to pay their mortgage and the new government loan, but they would not have to make any payments on the Treasury loan for the first five years. During that time, investors in the loans would pay interest to Treasury, and after five years homeowners would begin repaying the Treasury loan at fixed Treasury rates.

[...] To modify one million loans, the FDIC estimated it would require a $50 billion public debt offering. Treasury would recoup the costs because it would have the first priority to recover funds if homes are sold, refinanced, or if the borrower goes into default.

(subscribers to the Wall Street Journal can read the full article HERE)

This is the most absurd thing I have heard come from Washington since at least this morning. Yes, there are that many absurd things coming from Washington these days. This proposal, if it ever sees the light of day, would essentially make you and me landlords as our tax dollars would be going towards backstopping more of Wall Street’s blunders. In the end, it would have an even more damaging impact on the financial sector as this proposal would essentially make the Treasury the first lien holder and the original lender last in the food chain since the Treasury would be paid first, and the original bank would be the last to be paid. In this scenario every mortgage lender and bank might as well start locking up their doors as the value on their already severely damaged toxic paper would be almost worthless in the end. Ever since the credit implosion began last year, the amount of stupid and utterly ridiculous proposals and actions being enacted has become paramount to socialism.

RebelTraders does not have any political agenda, we are here to help the average person navigate the world of Wall Street, and make money along the way. But now and then things come up that even we find so hard to believe that we have to speak up. Lisa and I are for a free Wall Street, free capital markets, and a Government that stops bailing out the mistakes of big corporations. The credit and housing market implosions have brought out the worst of the US Government and their handling of this situation. In their constant attempts to ’save’ their political butts, they are creating a potentially dangerous and systemic catastrophe. We are in awe of the amount of stupidity coming from Washington, D.C. And it is not one political party or the other, both are just as bad in their handling of this mess.

If you feel the same way we do over this proposal by Sheila Bair of the FDIC, then email them and tell them you don’t want your tax dollars bailing out the mortgage mess.

Email address :    communications@fdic.gov

Our long time readers will remember that many months ago I wrote that when President Bush appeared on TV the day before big economic data was to be released it was an omen of bad news. When President Bush announced the stimulus package a few months ago it was the day before the monthly unemployment report. I wrote that I had a feeling it meant bad news was coming. And the next day the unemployment report was the first negative job growth in 4 years and the market sold off hard. Well, today President Bush appeared on TV again, this time blaming Congress for all of the problems in the country. Tomorrow we have significant economic data coming out; GDP and the FOMC decision. Was today’s appearance, and the placing of blame on Congress, another Omen of bad news to come? Can’t say, but all indications point towards a worsening economy. But will tomorrows data reflect it? If they use real world data then yes, if they estimate on the high side of everything then the number will be higher than expected.

The last quarter GDP came in at 0.6% growth. Analysts expectations for the GDP data we get tomorrow is anywhere from 0.2% to 0.7%. Because the GDP is made up of some elements that are essentially ‘estimates’, it is prone to revisions. So it would not surprise me that the GDP is higher than expected tomorrow, only to be followed down the road with a revision down ward. But, my estimate for real GDP this quarter stands at -0.2 to +0.2%, and the next quarter is -0.4 to -1.0%. These estimates are based on real world observations, and if true, would show up in the actual Government GDP data once all the revisions are in. But what I think the real world numbers are does not mean anything to Wall Street, it is what the Government says they are. And tomorrows data is the first look at Q1 GDP, there will be revisions to the data and that you can count on.

How do I get some of my ‘real world’ data? I ask people everywhere I go, that’s how. I very politely ask retail clerks and others who run a business how they rate their sales. I tell them I write for a financial web site and I am taking a poll on real world sentiment and how their sales have been impacted. I tell them to give me a number between 1 and 10, with 10 being sales are normal and 1 being sales are very bad. The general number I get is 5 to 6. So this would be a 40 to 50% decline in sales since January 1st 2008. Because I ask the question based on sales since the start of the year. I get out there and ask, I observe, and I put together my own calculations based on real world. Now although my polling is not scientific and is only in one region (Philadelphia, PA area), it still gives me an idea of the consumer and how they are reacting in the face of rising costs of living and the values of their homes falling.

So the question comes down to how the market will respond to the data tomorrow. The past several weeks the markets have been advancing on ‘hope’. If the economic data comes in the slightest bit negative, then this market is going to sell off very hard. Even if it is neutral there is a high probability of a sell off as the news is baked in the markets advance already and it will be a "sell the news". In either case, if the markets decline tomorrow then the indices remain clearly in a bear trend. Tomorrow is going to be a wild day. And Thursday and Friday will be crazy as well with ISM on Thursday and unemployment on Friday.

All of the major indices are right at major resistance levels still. It is like a flood of people all pouring into a crowded room and being pushed up against the walls. The room is so packed with people that all it will take is for a door to open and it will be a flood of people pouring through very fast. But which door will be opened? The front door and we go up, or the back door and everybody runs the other way? The Government, and their attempts to keep the markets afloat is akin to herding sheep into the pen. Will this be a slaughter tomorrow, or a freeing of the sheep? My long term projections of the economy tell me clearly that the sheep will get slaughtered in the long run, their demise is almost certain. But will Ben Bernanke and the Government data give them a stay of execution tomorrow?

Take a look at the chart of the Q’s (QQQQ). Just one more chart showing resistance levels being tested and still holding.

(Q’s Daily Chart)

Any Apple traders out there? If you are long on Apple (AAPL) you might want to consider selling, fast! Well, that is what I would do anyway. If you have a profit in Apple take it and get out. The technical indications are for Apple to sell off very soon. I see Apple taking a hit of at least 14% to almost 25% loss in the coming weeks. And that would be just for starters. If you are considering shorting AAPL, then use the trend line in the chart below as your stop out point.

(Apple (AAPL) - Daily Chart)

Finally, today we got word that Standard & Poors has cut the ratings on 2,183 sub prime Residential Mortgage Backed Securities (RMBS) which have a street value of $41 Billion dollars. So with the strike of the pen today, many more banks and financial institutions just got told that their holdings are worth even less, again. This in no doubt related to the continued decline of housing prices which fell today at the fastest rate on record. Those who have been saying the housing market was showing signs of improvement are wrong. We have been saying for a long time that the housing market situation was going to get much worse before there was any stabilizing. Remember, we go with trends, and trends are still pointing down. Todays data just turned that trend into a torpedo heading straight down.

(Data Source: Moody’s Economy.com)

So there you have it, the market is lined up at the gate to either get slaughtered or freed to move forward to the next holding pen. Long term view of the markets remains bearish and we maintain that shorting the market is the proper long term course. But we are not foolish, if the market should pop upwards tomorrow on high volume, and the S&P breaks very hard above 1410 then all shorts are to be covered and go to cash. But that does not mean our view will have changed, it would give us an even juicer opportunity to short it later!

Tonight Lisa and I want to to tip our hats to our friend Karl Denninger over at Market-Ticker. Karl has been doing a wonderful job at bringing to the publics attention the mess on Wall Street, the credit and mortgage market disaster, and the Government’s handling of the problems. Karl was kind enough to give us permission to share with you a video that he and members of Fed Up USA put together on the protest at Bear Stearns last Friday. It is excellent and Lisa and I want to extend our thanks to the people who went to NYC to speak up for the average tax payer. Great job!

We have a request tonight. Our server logs tell us that we are now near 100,000 readers every month! But hardly anyone, but a few regulars, ever bother to make themselves known to us. Please take a moment and leave a comment and let us know you are out there. Let us know you how you feel about our work here, share your ideas and thoughts with our readers and feel free to exchange your ideas with us and with each other.

See you all in the morning…

Once again, most of the earnings coming out after hours are nothing to write home about.  The indices closed mixed, with the Dow and S&P down, Nadaq barely in the green.  These two news items stood out tonight:

S&P LOWERS 2,183 RATINGS ON US ALT-A RMBS DEALS ISSUED IN 2006; AFFECTS $41.05B  That ain’t chump change!

Citi (C) Announces a $3 Billion equity shelf offering  (Jiminiy Cricket!  How many times will they be trying to raise more capital?  How many times will investors keep throwing money down a black hole, before wising up, if ever?)
-CEO states “We are issuing common equity at this time as we continue to optimize our capital structure,” said Gary Crittenden, CFO of Citi. “We’re pleased with the strong interest we have already received regarding this issuance.”  (Hm..sounds like it may take a little while for those investors to wise up.)
-On a pro forma basis, after giving effect to Citi’s recent issuance of $6B of preferred stock and an assumed issuance of $3B of common stock in this offering, as of March 31, 2008, Citi’s Tier One capital ratio would have been approximately 8.5%

I’m going to have to start a new category for articles that make my blood pressure creep up.  This article is just one example.  Here’s an excerpt.  A man is asking about whether his investment advisor is really doing a good job for him, and this is part of the answer:

Oh, but I forgot. You saw “many signs” that 2008 was going to be a bad year. Please. The world is full of people who, with the benefit of 20/20 hindsight, knew that the market was headed for a crash in 1987 or that dot-com stocks would melt down in 2000 or that the real estate bubble would burst in 2007. Of course, we rarely hear about the other calls these prescient investors made that turned out to be false alarms.

You say you want “advice based on market conditions.” But it seems to me you really want your adviser to predict the future. That’s unrealistic. No one can do that consistently. And if your adviser did offer a warning of an impending downturn, moved you into more conservative investments and that prediction turned out to be wrong, I suspect that you would be howling about the money you lost from being out of the market.

Smart ass.  Read the whole piece–It’s sponsored by …………..FIDELITY!!