The Hopelessly Toxic Institutions have been allowed to almost seamlessly fail, The time is Now to Recap the Good Ones Still Standing ~  Or We Will See Ugly in the Stock Market

As I have harped on since the last bear market, when consumer confidence swoons, so too does investor confidence. That is why we occasionally see the stock market sell off into consumer confidence reports. However, as I have also harped upon, when the stock market takes out a swing low set on a consumer confidence date it is a sure indication that investor confidence has been shattered and downside risks increase immeasurably ~ almost immeasurably that is, except to those clued in to the bearish consumer confidence pricing models. That would be you guys, I know, because I have been more than vociferous about this point. So, here we find ourselves swooning into another consumer confidence Tuesday.

As we enter this CC Tuesday, it is important to note that investor confidence has diverged from consumer confidence. Most consumers still have their jobs, the sun still rises, and the bars are still open at 5 pm for the working stiff. But the investor is out of pocket some serious change. From peak to trough, the stock market has already lost roughly 30% of its value, and for the unlucky investors who have been listening faithfully to the false reassurances of Wall Street institutions and owned financial stocks, well, some of the stocks in their portfolios have been repriced to one penny.

The point I am making is there is almost ( never say never) no way in hell the stock market will set a bear market cycle low the Sept 30 CC Tuesday, as the investor is now shaking like a leaf in the frosty autumn winds. He is in far worse shape than the consumer. His proclivity to go long shortly after CC reports has expired and his animal spirits have turtled. Bunker mentality abounds, even I have been afflicted by the bunker mentality in recent weeks, in fact, ever since the bar on the SP500 on Sept 4 took out the August 26 CC Tuesday low at 1264. That was the day that signaled the SP500 had boarded the southbound train headed for my bearish pricing Consumer Confidence models targeting 1089-1109 roughly.

Other reasons that the stock market will be held hostage for the next few days are numerous. Numero Uno is that Congress can’t return to Capitol Hill to vote in a stabilization package until Thursday October 2. Weekly jobless claims will be out at 7:30 am, and with the prospect of jobless claims to escalate to 500,000 one just might expect stock market participants to shudder at that number ahead of NFP Friday expecting to show a loss of 100,000 jobs lost in September.

The stock market, in short, has more bad news to absorb before this week is over, with or without a stabilization package. My bearish timing models suggest the earliest to anticipate a stock market low would be next week, but, a stabilization package on Thursday October 2 that is approved after the weekly jobless numbers might just do the trick. As an aside note, that is also the day investors can return to their short selling. How coincidental would it be to sign an emergency stabilization bill on the day short-sellers can return to the market? The timeliness of such an event will almost assuredly keep short-sellers sidelined for more than a few weeks if not a few months for the most part!

For me, the only question I have for the stock market is this: to crash or not to crash? Yes, today was ugly, and has the earmarks of what looks to be the beginning of a crash. Signature crash moves tend to last 4-5 days with the final two days being the worst of it. So, today’s 100 point range in the SP500 would then be considered just the warm-up pitch. A four day crash that starts from today’s high at 1221 could well extend into another 200 or 300 points lower between now and Thursday.

We could be looking at a retest of the 9/11 lows at 939 or the 1998 yr lows at 929-936. Yes, that would be what a crash might look like from here were it to happen this week. So, word up! My damn bearish CC models, which up to this point have proved to be fairly decent guides for us, had better not fail us now! The trader in me says let the crash come as the greed on Wall Street deserves it, but the sensible side of me knows that signals the credit crisis will devolve into far worse hardships for Main Street.

I have made no bones in recent weeks about agreeing with the critics who have argued from the get-to that this bill in its present form is flawed for the American people and for our capitalistic system what is left of it.