Mortgagor Maddness.

Indeed Matt faded like the Red Sox!

I've woken up more feisty about defending a buy American stock thesis- stks that serve America and NOT Europe. Sure wal-mart missed and and the consumer is on the wane as well but what of that great engine of growth the Euro zone that everyone is tripping over themselves to sell into? Here's the latest from FT.

Eurozone growth falters

The eurozone's economic upswing has faded markedly, according to significantly weaker-than-expected growth figures that raised fresh questions about the future path of interest rates.

Gross domestic product in the 12-country region grew by 0.3 per cent in the three months to June, reported Eurostat, the European Union's statistical office. That was less than half the rate of increase in the previous quarter and left the region again lagging behind the US.

Led by Germany, eurozone economic growth rebounded dramatically in 2006 after years in the doldrums, and at the start of this year was comfortably outpacing the US.

With inflationary pressures rising, the European Central Bank signalled earlier this month that it would raise interest rates again in September, and financial markets had pencilled in further rises for the end of this year or early 2008. But the economic slowdown is encouraging speculation that the ECB might be forced into a re-think – especially if financial market turmoil continues.

A clear loss of momentum in Germany, France, Italy and the Netherlands, "makes the ECB decision to pre-announce a September hike look premature, to put it mildly," said Holger Schmieding, European economist at Bank of America. Since December 2005, the ECB has raised its main interest rate eight times to 4.0 per cent.

Growth in coming months is likely to be hit by the delayed effects of higher interest rates, a stronger euro - and fears about recent financial market turmoil.

German growth in the first three months of 2007 had been hit by a three-percentage point rise in VAT at the start of the year. The latest figures showed the German economy expanded by just 0.3 per cent in the second quarter, after a 0.5 per cent increase in the previous three months.

France also reported weaker-than-expected growth – and may prove to be the worst performer among the main eurozone countries this year - which could see Paris intensifying the pressure on the ECB not to raise interest rates further, and trigger fresh spats between Nicolas Sarkozy, the new French president, and his compatriot Jean-Claude Trichet, ECB president. French GDP rose 0.3 per cent in the second quarter, down from 0.5 per cent in the first three months of the year.

Italy last week reported a 0.1 per cent increase in GDP in the second quarter, down from 0.3 per cent – again below expectations.

>> Now that doesn't sound that good does it?

CPI on tap for today good news here would go a long way to putting an official end to the correction....
 
WHAT DO THE MARKET CYCLES SAY?
>Current Position of the Market.

SPX: Long-Term Trend - The 12-year cycle is still in its up-phase but, as we approach its midpoint, some of its dominant components are topping and could lead to a severe correction in 2008.

The past two weeks were extremely volatile for the equity markets and was characterized by large price swings. Beginning last Monday, and after dropping 127 points from its 1555 high of three weeks ago, the SPX had a 3-day, 76-point rally only to give most of it back in the next two days. All other indices behaved similarly.

The technical reason is that we are in the time period when the 4.5-yr cycle is due to make its low. Major cycle lows usually coincide with economic disturbances, and this is no exception.

But there are signs that the worst of the price decline may be over. During this last retracement, while the Dow industrials made a new low, the Russell 2000 and the Banking Sector -- both of which had presaged the coming decline by their relative weakness to other indices -- remained comfortably above their previous lows, thereby displaying short-term relative strength. It's also interesting that two sectors that have been the most directly affected by the housing problem -- the Dow Jones Home Construction Index and the Dow Jones Equity REIT index -- also performed relatively well.

On the charts you can see the positive signals which are beginning to appear in the RSI and Money Flow >>They have lost their downside momentum and have flattened out at the bottom of their range.

The SPX has already tried to move out of the smaller channel, but was pushed back. It is important that, in the current retracement, it does not travel all the way back to the lower trend line before it turns back up. This would be an indication of the deceleration in price which precedes a reversal.

Moving decisively out of the smaller channel and overcoming the recent high will be a positive sign that the uptrend has resumed.

The weekly chart shows that, unless it continues for a while longer and goes deeper, the current correction does not seem to be too much different from the previous intermediate downtrends which have taken place over the past 2+ years. What is remarkable here is that the 4-year cycle which bottomed in July-August 2006 and now the 4.5-yr cycle which is currently bottoming have only produced such shallow price declines. This should be an indication that the bull market has longer to go.

If prices had held at a higher level as they retraced after last week's rally, it would have signaled that the correction was already over. But since the index gave back most of its gain, it is likely that the bottoming process is on-going and will take a bit longer.

Cycles

The long, intermediate and short-term cycles are all playing an important part during this time period.

Longer-term, the 6-year cycle has already topped and the 2 year should do so between now and October. These dominant cycles will not have an immediate effect on the market except to slow down the bull run over the next few months after the 4.5-yr has made its low and takes the indices to new highs, but they should begin to exert downside pressure as we enter 2008.

The 4.5-yr cycle is in the process of making its low. This could take another 1 to 3 weeks of base building action.

The bottoming of the 20-week cycle was probably the cause of last week's substantial rally. We are now in the back n' fill phase... This should take 2 weeks.

Why 2 weeks? Because the week after next will see a nesting of several short-term cycles which should have some effect on the market. If the 4.5-yr low does occur next week (which it very well may) these short-term cycles will only provide a retracement after the initial lows. Or they may give us the final downward thrust of the larger cycle.

Since it now looks probable that we will make new lows next week, what would be a reasonable target?

Unless the Point and Figure pattern which was made on Friday changes dramatically on Monday, the next downward projection appears to be between 1410 and 1420. This is supported by Fibonacci ratio targets as well, so it would be the area to look for another reversal and potential low for the larger cycle.

Breadth

There are two aspects of the A/D ratio to which I pay close attention. The hourly figures and the MACD of daily closes, which is a very close simile of the McClellan oscillator.

I find it significant that the low of the hourly figures came on 7/26 when it reached almost -3000, and that this figure has not even been approximated since that date. Subsequent selling waves only brought the ratio down to -2000 on three separate occasions, including last Friday. I believe that this is a sign that we are very close to the cyclic low.

This possible bullish implication is also strongly reflected in the performance of the daily oscillator.

The ISEE Put/Call indicator is also at a level which is normally associated with important lows. Note that it is currently even more bullish today than it was at the March low.

The intermediate decline which began at 1555 on the SPX and which is caused by the bottoming of the 4.5-year cycle may be just about over. Preliminary positive signs are appearing in momentum, breadth, and sentiment indicators.

The 4.5-yr or 54-mo cycle which last bottomed in March 2003 is now in its 53rd month and is on schedule to make its low.

Because of the short-term cyclic configuration, the bottoming process may be extended for another two weeks.
 
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