I’m Gonna Tell You How It’s Gonna Be. BIZZARO VERSION

I just read a popular blogger/money managers latest market missives. Many truly enjoy blogger/guru commentary which are both entertaining and enlightening. I am not here to take issue with various prognosticators, but rather to offer an alternative to some of the latest markets forecasts that suggests the market will break out, big-time.

I’m not going to talk about the bullshit “forecast then beat” earnings announcements. That stocks might move based on this is the height of trader-based idiocy. I won’t discuss how the market has defied the odds by remaining a spit away from post-crash highs in the midst of the worst news flow since the Credit Crash itself. I won’t mention about how market sentiment swings with each near-term market movement, bending like a reed in the wind against near-term consensus. I won’t talk abough how QE is over or that worldwide governments are fiscally failing. I don’t care about almost anything or everything that we think we know about markets and the economy. 

Remember last year when QEI ended? The markets levitated for about a month before pulling back about 200 SPX points or about 15%. Most of the summer witnessed a market that continued to test the low end of its trading range. Between the end of the free government money (QEI), a weakening economy and the weak technical picture in the markets, EVERYONE TRULY BELIEVED that markets just had to crash as the “A-Team” came back from their Hampton’s Holiday. After all, there was little justification, fundamentally or technically, for higher prices. Yet Uncle Ben came to the rescue and markets did exactly the opposite of the overwhelming consensus.

Our economy and markets are in a very similar situation, both fundamentally and techinically to last year. The only difference is that the fundamentals are actuallly worse and the markets are 25% higher. Hows that for irony?

The reason that markets are levitated at the top of the range is because NOBODY will make the same mistake that they made last year. NOBODY will allow the fundamentals to get them bearish when they KNOW that there will be unlimited stimulus, liquidity and cash thrown at the markets at the smallest hint of disaster. Everyone just KNOWS that fundamentals don’t matter and that the market CANNOT go lower. After all, they’ve been given every opportunity to crack wide open, yet they have not done so in the midst of one of the worst years for external-driven news perhaps in our lifetimes.

So here we are hovering at the highs of our trading range, exactly inverse to what we were doing this time last year when we hovered near the low-end of our trading range. Last year most expected the economic and market weakness to lead to a major pullback. Now, most have witnessed the resilience of our current market and will simply “do what the market tells them to do” and that is to buy every dip.

Last year the expectations were for a big technical breakdown once everyone realized how weak things really were. This year’s market situation has brought many forecasts of a hearty breakout to come once some of these negatives “clear up”. And watching weekly 50 point SPX ramps in the midst of the news, I can understand the forecast. But as we witnessed a marginal breakdown last year (30 SPX points) that got everyone really bearish before a monster reversal, I expect that this year we will get an exciting marginal breakout that will get everyone excited and wanting to ‘play’. It will come in spite of news or fundamentals. It will bring a call for some really optimistic end-of-year forecasts and/or more stimulus from the Central Bankers. We may get to the SPX 1400 area and that is when the optimism will really flow. But that is where the market will trap all those who have been programmed to ignore all semblance of reality and instead focus on “what the market is telling them”, especially since the markets can change shape in just a few trading days.

The Wall Street Complex is designed to foment ever higher stock prices and with the help of almost unlimited free money, the Complex has done its job. We have made back all that was lost since the greatest market freeze in history. After all, the stock market’s near term activity has become the barometer of corporate and individual confidence in today’s economy.  Invest or trade in a style that works for you but stay skeptical and be ready for a big negative market surprise that could come at any time. After all, this is NOT a garden variety recession. It is something that happens rarely but whose consequences are bigger and longer lasting than any market cycle.