Once again, the movement in liquid financial assets have proven that it is a FED-owned and controlled marketplace. Gosh, it is really simple. No QE, market goes downy. More QE or just the PROMISE of more, means market goes uppy. Duh.
I was expecting the market to break to new lows and then set up a “Wyckoff Spring”. That would have cemented an overwhelming bearishness that had to be bet against. But instead the lows were simply tested a few trading days after they were made. Historically, for a double bottom to be “good”, it should happen over a longer time period and should be marginally broken. But that historical setup was wrong. We never even touched the low before blasting higher.
Here are some stats. Since Jackson Hole and the lows made at 10:30am last Friday to 10:30am Wednesday:
Dow up 781 points/7.1%
SPX up 89 points/7.8%
Nasdaq up 226 points/9.47%
Russell 2000 up 75 points/11.3%
Transports up 545 points/12.8%
Ladies and Gentlemen, these gains have come in less than three trading days and the only thing that has changed AT ALL is that QE will be revisited during the next FED meeting. THAT IS ALL. So last year’s playbook has come into play once again with this year continuing to mirror last year. The dogs are drooling…
If my market forecast were based solely on technicals I would say that what we have witnessed is a classic Bear Market Rally or a Dead Cat Bounce. And a further observation would be that equity correlations are at record highs, with down 90% days followed by up 90% days, one after the other. Those kinds of extreme technical readings used to portend some future market movement. It no longer does. So all we have is where “natural” supply and demand resides.
Historically the September/October timeframe is a weak one for the markets. But last year the market rallied sharply thanks to the promise of QE2. Then came $5-7 billion a day pumped into the marketplace. Now there is simply speculation on what QE3 will look like. The bottom line is that we are currently in neither a Bull nor a Bear market; we are in the process of establishing a new trading range and we have just reached the halfway point between our yearly highs and our recent lows–and now that we’ve rallied big for a few days, people want to know what to buy NOW. My advice: we are at one of those natural resitance points so don’t chase. The hope of more QE, a Flag Waving Holiday and month end markup time has all rolled up into one tight rally. Don’t get bagged…