Obama's Huge Mistake Hands Al-Qaeda a Victory and Defeat for CIA

Charts: The S&P 500's 200-day moving average is 1257. In volatile trading today the index rose in the morning then crashed to hit the 200-day line, found support, and bounced up for a tiny gain. It is positive that the 200-day line held. If it doesn't hold over the next few days while the VIXX (fear gauge) spikes, then more big losses are in store. The VIXX has been spiking lately, which is a new and unwelcome development in the correction. Up until now the VIXX had been tame.

Earlier in the week another rally attempt was brutally crushed. Over one month ago the correction started by forming a gently down sloping trading channel. Then we had a brief waterfall pattern, which means the market drops without slowing down when it hits support levels. Now it appears the waterfall period is over and we have entered another downward sloping trading channel where support levels check downdrafts (good). Throughout all this growth stocks have been really clobbered. Leadership is very bad. For instance, the Shanghai B index is down about 28%, entering bear market territory. But defensive stocks like Coke are holding up. This means the mild 7-8% drop in American stocks understates the technical damage done so far in the current correction. Coke cannot lead the market up to new highs. That is a job for Apple and Caterpillar.

Fundamentals: The market is fixated on the Greek debt problem. The EU, ECB, and IMF can't figure out how to put together a new bailout package without triggering a Greek default. The bailout package on the table calls for massive free market restructuring of the Greek economy combined with some sort of default. Any default will tear apart global financials markets. And Greece is proving unable or unwilling to accept this package and restructure. The possibility arises that the existing proposal will be shelved and a small aid package with no strings attached will be delivered to Greece to kick the can a few months down the road. Probably there will be a stock market relief rally if this happens. Kicking the can down the road makes a long term solution more difficult. If it is only kicked down the road a couple months, then it is likely any relief rally will get crushed without a real solution in place.

Long War: The CIA has infiltrated the Pak spy agency (ISI) and the Pak Army, with a small network. Al-Qaeda has infiltrated ISI and the Pak Army with a large network. The ISI has recently arrested the CIA operatives within its own ranks who helped kill OBL. So the CIA network that exists within the ISI is being dismantled and the Al-Qaeda network is growing. Put another way, at the moment Al-Qaeda is beating the CIA in Pakistan.

The pro-American leaders of the ISI and the Pak Army are on the verge of losing their jobs. They are both a heartbeat away from being overthrown by mid-level officers who are now rabidly anti-American because of the way Obama handled the killing of OBL. The Pak Army could easily experience a so-called "Colonel's Coup."

CIA drone bases within Pakistan are no longer receiving food, water, and other supplies. Probably new drone bases are being built in Afghanistan. In a hundred little ways the Pak Army and ISI are reducing cooperation with the Pentagon and the CIA. Any hope for the Pak Army to invade North Waziristan is long gone. A friend is slowly becoming an enemy.

When Obama made his speech about killing OBL he literally took a bow, nodding and bending to the camera with a smug look on his face. He did this to get a bounce in the polls. But he destroyed America's most importance alliance. The Pak Army has 130,000 soldiers currently engaged in combat with the Taliban. If they stopped fighting in the near future the result would be nightmarish.

There is no point in being Chicken Little and saying the sky is falling. However, I remind you that Britain's empire fell because it went to war with its strongest allies, the Boer Republics in South Africa. At the time the British Parliament was saying all the same things about the Boers that our Congress is saying about Pakistan.