Today we learned that weekly initial jobless claims rose to 500,000 (up 12,000), when the estimates were just 478,000. This data point is a leading indicator for the monthly unemployment figures, and does not bode well for the August figures that will be released on September 3. This is the worst weekly figure in over a year, and all but confirms that a double dip recession (or continuing depression) is a certainty.

In addition, the Philly Fed figure, which is a leading indicator on manufacturing and industrial production, came in at -7.7, when the expectations were for a positive reading of 7.0. This is a huge miss, and tells us what we already knew…the economy is rapidly reversing course.

All of this negative news has the Dow down 150 points to 10,265 as I write this, which puts us just that much further below the 200 day moving average…and even further into bear market territory.

The next important support level is 10,000…and if that does not hold then 9600 will be the level everyone begins looking at. Granted, that’s still 650 points from here, but with the negative economic data coming our way, it’s possible that we could get there in a hurry.

I continue to believe that the last 4 months of this year will be a mirror image of the last 4 months of 2008, which saw the Dow drop 4000 points, or over 30%. There is one big wild card however, and that is the November elections. You can bet that Obama and Bernanke, who is already the most politically charged FED Chairman ever (well, at least close to Greenspan) will do whatever possible to make the stock market head sharply higher headed into the elections. This remains the biggest risk to those that are short the market, and with the power that the FED has at its fingertips, this possibility should be respected.

However, as long as we stay below the 200 day moving average, we will remain short (through SPXU, FAZ and SRS).

I have had a few questions on how a significant market drop will affect Falcon (and PetroHunter). And while a big drop certainly would not help them (or any other public company), it’s important to remember that they both have a very low Beta, which is the price correlation to overall market direction. On the flip side are companies like Apple, Google, Goldman Sachs, etc, which move just about in lockstep with the overall market. Falcon will be driven by one thing and one thing only…and we all know what that is…news of subatantial joint venture(s), along with announcements on future plans for drilling in Australia. I have no “new news” to report on this, but with each passing day we get that much closer to an announcement.

Kip

For information on the Economy and how to protect your wealth watch the documentary

“The Conspiracy Against Your Money”