Doug Kass made news last week with his “market has topped“ declaration. Kass said that the market has more than likely peaked for 2009.  He believes the consumer is dry and can’t afford to spend money on anything but necessities. The retail consumer is the primary driver of the economy and responsible for some 72% of the GDP. With summer over and the home buying season over that will mean the consumer is going into hibernation for the winter. He also worries that taxes are going sharply higher despite campaign promises simply because of the rapidly rising Federal deficit.

Doug was one of the few analysts bold enough to call for a market bottom in early March during an appearance on CNBC.  Once again, keep an eye on the dollar as it has how traded into pocket support.  There are rising wedges visible on almost all indicies which suggest a profit-taking wave is inevitable.

Back on November 5, 2008, this chart outlined the ascent and breathtaking fall of the Shanghai Composite Index.  This pattern played out a mere five years earlier in the Nasdaq Index.  The key to the bottoming process was the breakout of the steep down trend line – the Chinese markets registered this signal a few day later and on November 22, 2008 I noted that it should lead the global markets.

Nine months later from the original post, the SSEC Composite is up an astounding 83% from the lows around 1,700 to today’s close at 3,145.  Over the next weeks, expect there to be consolidation sequence due to both gap resistance around 3,200 and pocket resistance up to 3,500 as seen on weekly charts.

The market is now at a critical juncture.  Internals suggest that the intermediate term defensive / capital preservation team is now on the field.  A head and shoulders pattern (rounded top) is now visible on most major indicies.  Today’s price action will most likely confirm this setup on an impulse move.

From Matt Taibbi’s “The Great American Bubble Machine” in Rolling Stone Issue 1082-83.

The first thing you need to know about Goldman Sachs is that it’s everywhere. The world’s most powerful investment bank is a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.

They achieve this using the same playbook over and over again. The formula is relatively simple: Goldman positions itself in the middle of a speculative bubble, selling investments they know are crap. Then they hoover up vast sums from the middle and lower floors of society with the aid of a crippled and corrupt state that allows it to rewrite the rules in exchange for the relative pennies the bank throws at political patronage. Finally, when it all goes bust, leaving millions of ordinary citizens broke and starving, they begin the entire process over again, riding in to rescue us all by lending us back our own money at interest, selling themselves as men above greed, just a bunch of really smart guys keeping the wheels greased. They’ve been pulling this same stunt over and over since the 1920s — and now they’re preparing to do it again, creating what may be the biggest and most audacious bubble yet.

Markets have now lifted for the past nine weeks.  Beneath the surface, however, there are signals that structural shift has occurred in the overall market breadth.  The McClellan oscillator is very close to signalling a trend change in the summation index.  This was the same signal that was present and confirmed the early March “V”-spike bottom.

3:00pm – A divergence is registered in the hourly S&P 500 index – higher prices, but lower momentum.  This is the first clear signal since the ‘dancing with the devil’ early March lows.   Beginnings of a profit-taking shift?