This week the market continued to trade in a sideways pattern while the technical conditions suggestive of a correction deepened. As we pass the mid term election and approach the November FOMC meeting, my long term stance continues to be bullish but my short and intermediate term stance is neutral.
This week I upped my profit taking signal to 1/2 from 1/3. Here’s the BullBear SPX trading history for 2010,
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There are many potential scenarios for the coming week. Will the Fed exceed or disappoint expectations for QE2? Will there be surprises in the election? Will news break on the mortgage crisis? It’s crucial to remember that the news itself is meaningless. We are only concerned with the market’s reaction to the news. And that reaction will be shaped by its technical condition and overall setup going into the news event. Later in this report, I’ll look into the market’s technicals to divine its inner message so that we can be best prepared for what comes. But first I will indulge in a little bit of speculation about the current psychological and sentiment setup revolving around the Fed and QE2. And when I say "setup" I mean that in the classic sense of the setup in a criminal confidence game. We shouldn’t lose sight of the fact that that is the context within which we are playing when we enter into these "markets".
THE FED AND QE2 This may be the most anticipated FOMC meeting in history. And the markets have bet heavily on a certain outcome with little fear of loss. Sounds like a classic con setup to me.
Here’s a range of setup/reaction possibilities with regards to QE2 on Wednesday:
1. Correction prior to the event,
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2. Continued consolidation prior, strong "sell the news" after.
3. Continued consolidation prior,
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4. Rally prior to news,
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There are many other permutations of the above. Frankly, I don’t think it’s really possible to know with any bettable certainty at this time. I strongly suspect that a selloff is coming and it may come as a "sell the news" reaction. Technically, there is good evidence that the market is waiting for an excuse to do some selling. There may very well be an initial pop higher first on a "satisfactory" QE2 plan followed by a sharp selloff.
But my "gut" (sometimes you need to check your gut intuition which is the wisdom of accumulated experience) is telling me that the Fed is going to disappoint the market to some degree. Here are some of the possible "disappointment" scenarios:
1. Fed postpones QE2 for later date either in full or partially,
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2. Fed downgrades QE2 to an incremental process over a longer period of time.
3. Fed packages a limited asset purchase program with other measures such as decreasing reserve requirements,
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My gut says that there is going to be some kind of surprise. Economic data of late has not been so horrible as to justify a "shock and awe" program of the immediate printing and wanton tossing of trillions from helicopters. There will be the fresh political pressure of a new,
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Let’s assume that "They" (you know,
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1,
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2. Knock down value of precious metals,
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3. Support asset prices.
4. Keep Treasury prices high and yields low.
There’s lots of talk and a general consensus that Fed purchases of Treasuries will have little or no effect on the economy. If that’s the case, what’s the point?
The April July panic was whipped up by the media and it drove investors into Treasuries providing a market for inside elements to exit their positions. As the common investor panicked into bonds, the Chinese, PIMCO and others were selling out. Since fear is no longer the modus operandi,
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I also think that "they" may have purposefully set up precious metals for the smackdown. Is it likely that they will hand the gold bugs the ultimate fantasy hyperinflationary scenario on the proverbial silver platter,
Welcome To Our Online Nike Free Hot Punch? The setup reminds me of the March 2008 gold peak on the night of the Bear Stearns collapse,
Discount Free Hot Pink. That became a big sell the news event. Hyperinflationists are literally banking on the Fed funding the precious metals moon shot,
Store Online Mens Shoes Free Hot Pink. The irony is incredible. The logic is that "they" have painted themselves into a corner and are now powerless to do anything but commit public ritual suicide and admit that their system is bankrupt. This has become an ingrained assumption,
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I think the master manipulators would want to engineer a scenario that would really crush the metals and only temporarily ding equities while also giving temporary support to Treasuries and the US Dollar. What course of action would accomplish that?
The hyperinflationary scenario involves the creation of huge amounts of new money. But there is already an enormous money supply that is not being used in the economy. The Fed may target means for injecting this accumulated, pre existing old money into the economy rather than creating large amounts of new money. If that is the program they announce on Wednesday, the short term action (1 7 days) could be overall bearish but in the intermediate to longer term the market would likely trade this as bullish for the economy, stocks and most commodities and bearish for precious metals. Treasuries would likely pop at first and then decline gradually with Fed purchases slowing the decline.
That’s my best guess at this juncture. It is an educated guess,
Real 100% Running Shoes Nike Free Tiffany Blue, not a trading plan. It’s healthy to explore some of the less accepted scenarios. Perhaps the mental exercise of envisioning the possibilities will keep us flexible and open minded as the reality develops in real time.
MORTGAGE BANKING CRISIS AND MID TERM ELECTION The other fundamental news factor that is gestating in the background is the mortgage banking crisis. All 50 State Attorneys General have joined to launch an investigation of the home foreclosure process of the banks,
Find The Latest Style Of Authentic Nike Free Tiffany Blue, some have sued banks for fraud and most of the banks have put a halt to foreclosures altogether. This feels a lot like the proverbial "first shoe". It seems likely that we will hear the sounds of many more shoes dropping after the mid term elections. Newly elected state officials may be encouraged by the popular mandate to "get the bankers" (and certainly banker bashing may become the road to higher office in the years ahead).
In this context,
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