1) Five Themes for 2009 Midyear Scorecard

Now that the first six months of the year are in our rear view mirror, let's take a quick look at Five Themes for 2009 and see how they stack up here at the halfway point.

FIVE THEMES FOR 2009

1. The Point of Recognition
"If there is one theme that stands above all else in 2009, it will be this: The despair that unfolds as the point of recognition emphasizes the "de-" in deflation. The fat is in the fire."
Grade: C
Let's be honest, as long as people are discussing "green shoots" the Point of Recognition is not quite here. But there are still six months left in the year.

2. Putting the "De-" In Deflation
"As declining risk appetites manifest in nearly everything in 2009, from our collective views on financial risk to our tastes in culture, music, film and fashion, we will see a focus on declines, destruction and devaluation. Perhaps nowhere will this be more obvious than in the disintegration of large-scale social networks into smaller, more focused and intimate groups.

While peak social mood helped propel the movement toward increasingly open social networking platforms and large scale interactions, the rush to disassociate from the crowd will inevitably manifest as a reduction in broad network exposure and a preference for close-knit, tighter communities. Beneficiaries of this movement will be families, small groups and, to an extent, neighborhoods."
Grade: B
"Recession generation? Young adults brace for simpler lifestyle" - USA Today, June 30, 2009
"This is the time where a lot of their [Millennial Generation, ages 18-29] attitudes are set. The long-term is still in question, but it has the potential to have a big impact and change the views that they'll have throughout their lives," says economist Richard Curtin, who directs consumer surveys at the University of Michigan in Ann Arbor. "They'll be more oriented toward economic security and relationships, more toward savings and less toward spending."

3. The Rise of the Specialist & the Entrepreneur
From a business standpoint, the operative word for 2009 will be "specialization." As the deflationary debt unwind continues, the businesses most at risk (other than the obvious ones with the largest debt load) are those whose business model attempts cater to broad audiences; the so-called "Jacks-of-all trades," which are in the process of becoming exposed as "masters of none."

Those companies that spent the bull market expanding product lines, conglomerates such as General Electric (GE), mass retailers such as Wal-Mart (WMT) and Target (TGT), automakers that make every type of car and truck like General Motors (GM) and Ford (F), banks such as Citigroup (C) that once had a hand in almost every financial-based revenue activity unimaginable, will spend the next year dismantling and dissolving many of their business lines.
Grade: A
"Faced with bleak job prospects, many of the unemployed are hanging out shingles. One in four workers who have not found jobs is considering launching a business, according to a new CareerBuilder.com survey."
USA Today, April 20, 2009, "Some Lose a Job and Become an Entrepreneur"

4. Don't Touch Me!
"Whoa! Hey! Don't touch me!"
- Brak, "Don't Touch Me"

For 2009 we should expect increasing bursts of social strife and ugly human behavior culminating in increasing waves of violence and crime.
Grade: A
Just take a look around.

5. Markets: Gold Declines, Dollar Rises, Interest Rates Hover at Unimaginable Lows
I recently covered in the article, "Bear Markets Ain't Over 'Til They're Over," the reasons why I believe probabilities favor dramatic new stock market lows in 2009, but what about the other asset classes, gold, currencies and bonds?

As for commodities and precious metals, look for 2009 to begin optimistically with commodities retracing some of their disastrous declines this year.
Grade: B
When Five Themes for 2009 was produced, December 31, 2008, the S&P 500 was 903.25. The drop to 666 was dramatic, but still 72 S&P points shy of my target at the time of 593. Oh well. The rest is mixed as well. Commodities are up nearly 40% year-to-date, but gold just a little over 6%. Interest rates remain at levels last seen in 2003, but above what I consider "unimaginable", which means below 3% for the benchmark 10-year.


2) Midyear Market Update (DeMark Indicator Overview)

Let's take a look at where we are with the S&P 500 from a DeMark indicator standpoint as the second quarter comes to a close.

The chart below shows the S&P 500 with TD Absolute Retracement Up applied from the March 6 market low. The dashed line at 944.43 is the 38.2% TD Absolute Retracement Level up from March 6. It has been crossed 8 times since May 29, but these crossings have failed to produce a QUALIFIED break of the level, so it remains a clearly significant overhead ceiling of resistance for the market.

CLICK TO ENLARGE
                                 

If you back up for a moment and look at the solid green line, it shows a TD Sequential Sell Signal 13 that recorded on April 27. Two days later that TDST level was broken in a qualified manner which told us the TD Sequential Sell Signal was less likely to "work" and that the market was simply not showing signs of true exhaustion.


3) Larger Market Context

In the larger context using higher time frames, we knew back in May that there remained a positive window of (at that time) 6-8 weeks where higher time frames, having recorded significant downside exhaustion signals, were likely to be in control of the market, which is what we have seen.