The best EW count leaves room for a minor sell off and yet another ramp higher, so we could reverse as early as tomorrow and sell off mildly for a bit and then finish the ramp to the false breakout. We don't have to though. But IMO, we need a blow off fake breakout here to complete this rally. Just touching a trendline is likely not enough here.
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Key Levels
Upside -- 1327, 1344
Downside -- 1318, 1306, 1294, 1270, 1252-1257, 1226
* of note here.. the bottom of the very old trangle is rising fast, a sell off of only 100 S&P points right now puts us below all major support
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SPX Daily (12 month)
So here we are, we hit the trendline today. That may be enough for a smaller pullback, that would push us down to the rapidly rising bottom of this wedge, or we can go ahead and breakout north in what I believe would be a false breakout.
To be proven wrong, the S&P needs to put in a new 3 year high above 1376. The DOW and NASDAQ would likely be at highs already by the time the S&P took out 1376, so it would basically confirm it along with the Wilshire most likely as well.
We are almost at 20 on the MACD.. magic long term number is 24 for extreme rallies. Extreme sell offs have always followed after the daily MACD made it to 24.
Its getting harder and harder to see what will stop this market. I'm sure quite a few people who are short are bailing right now. Those are all signs the top is near.
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If you wonder why Bernanke would commit the FED to keep rates near ZIRP for almost 3 additional years. 3 more years!!.. think about that relative to the past, those who have been around long enough. The old cycle would involved several lowering of rates in quick succession, then followed by a pause and then when the economy picked up, very little time was wasted in beginning a campaign of raising rates into the improving economy until it either became obvious they moved too slow with raising rates or they moved too fast. Usually the beginning of rate raises came within 6-10 months of a market bottom.
We sit now at S&P 1330, the DOW within 60 pints of 3.5 year highs and within 17% of all time highs, and we have the chairman of the Federal reserve basically throwing out any chance of a rise in rates for 3 years!.. thats almost an entire business cycle! of what used to be normal business cycles.
I have to think that you look no further than Europe for the reason why. The only conclusion you can came to is that Bernanke knows that the Europe situation is not solvable in the long term and that only 2 things can happen as an outcome and they are both bad and both will hurt the global economy. He must see it as a minimum of a 3 year process.
I'll tell you what though, if inflation does pick up suddenly.. hes in big big big big trouble.
I think the risk that still exists for S&P 350, is defaulting debt in Europe setting off a firecracker chain of derivitives on soverign debt, of which trillions in notional value exists, and essentially burys 50% of large global banks.
The large #s being thrown around, like the ECB or IMF can just pull 1 trillion dollars out of their asses has really lulled the market over time into the idea that any threat to the derivitive chain will result in the printing of trillions coming from somewhere to bail out everyone and stop it. Basically, market participants have now been led to believe that an actual disorderly default of any country or bank is impossible and will never happen.
This, I believe, is a unrealistic view of the situation.
GL
CJ
4 comments:
I believe you are correct. 3 more years of ZIRP is far from positive for the economy. Signs of wear are all over: storefronts closed, houses still left abandoned, RE shadow inventory still lurking, more people on food stamps, noticeably higher food prices everywhere, and fuel at near it's peak. By holding ZIRP for at least 3 more years, Bernanke is basically saying we haven't started recovering yet, and recovery isn't on the horizon.
What's more, Bernanke didn't mention QE, despite some expectations that he might toss out a new round now that the Fed is stacked with doves. I think they all know that more QE would be funneled into commodities and throw the world into even bigger chaos. There's solid reason to believe that poor earnings this quarter have come from margin compression, and the "Arab Spring" was a direct result of previous QE. Printing at this point is not an option for anyone.
A lack of a deal on Greece at this point suggests that they might be the "Lehman" moment for Europe.
I just hope this nightmare finally blows up so that we can get around to actually reforming things this time.
Keep up the interesting work.
"I just hope this nightmare finally blows up so that we can get around to actually reforming things this time."
That is the most frustrating part for me of all this.
Had we allowed the chips to fall where they may, there would have been rough times after the Lehman collapse, but it would all be over now and the government wouldnt be running a 1.4 trillion a year deficit in a vain attempt to limp the economy along.
The pain must eventually be taken and all of this is just making it worse.
Worse for us and worse for our children because of the debt we are compiling in the process.
"If you wonder why Bernanke would commit the FED to keep rates near ZIRP for almost 3 additional years. "
$15.275T is why.
15 trillion is debt already issued.
but higher rates would restrict the government from continuing to run 1 trillion plus deficits going forward.
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