The equity market has levitated waiting for another trillion dollars from the FED. No such luck.

We will now revisit SPX 1140 and this time it should break.

Why on earth, with Europe cooked and the economy shrinking, should our equity market be the biggest outperformer in the world?

The FED meeting has begun and AS SOON AS IT DID, MARKETS TOOK OFF.

News- flow is as negative as I have ever seen and well timed for the FED meeting. Gold is parabolic. Most other commodities are up except copper. Equities are running and frenzy is building. Apple has added almost $50 billion in market value in the past week.

The belief that monetary stimulus will aid the economy is wrong. But markets are programmed to believe it will help them. There is obviously some new and massive stimulus, or at least the rumor of some…

BE CAREFUL OUT THERE!

The market just gave back 25% of last weeks 4 day gain. Yet it feels as if you had better “angle in” or you’ll miss out.

There is a frenzy to own the remaining favorite stocks, notably Apple. With the freeze in the fixed income market sans Treasuries, the deep freeze in anything housing-related, and the diminution of energy, mining and industrial stocks, the equity markets have precious few places to turn. The focus is on retail and technology.

The Apple/Amazon complex is sucking up a tremendous amount of investor capital. Both, combined, now equal a half-trillion dollars and have a market value now as large as MSFT+INTC+CSCO. My, how times have changed! Apple is in 2011 what oil was until July 2008; THE LAST RESORT.

The markets around the world are waiting for the big tease to be revealed. Three weeks ago, at Jackson Hole, the Fed Chairman told the world “we’ll see” about the next round of QE. So far he’s promised an unlimited swap line to try and put a “ring” around the Euro banks. There is the Twist, making sure that our rates look exactly like Japans. And the X-factor; more new and fresh cash for injection into the area of risky assets. That has been the only reason that the equity market has not cracked wide open. We have been locked in a 100 point SPX range without a breakout or breakdown. What is most disconcerting is that the range is traversed in just two days.

Markets are in temper tantrum mode, screaming for more free money. But the fundamental situation continues to deteriorate in a big way. And it is not just a question of faith or confidence, it is a fact of reality. No big free pump and the SPX will be 1050 in a flash. Another trillion and we’ll be back to 1275 just as quick.

So, today a new and huge intervention designed to save Europe was announced. Do you think that Central Bankers woke up this morning and decided to announce it the day before option expiration? Or perhaps this was formulated this past weekend at the G-7 meeting.

Nevertheless, at about 2pm on Monday afternoon, the American equity market began a two day move that has rallied the Transportation index up 10% and the Nasdaq Composite up 6%, in two trading days. Do you think this move was because “uppy is goody and downy is baddy”? Not a chance.

We function in a market environment that relies almost exclusively on government policy and intervention, more than any time in modern market history. The fact is that government at the highest levels and industry are intertwined. And as we have witnessed firsthand, shortly before a major announcement is made, markets stage unusual moves both on the upside and the downside. Today’s announcement is no different.

We live in a time where there is MORE INSIDER TRADING than at any time in modern history. But because it comes from the Government itself, nothing will ever be done about it.

So I suggest that every investor constituency hire a very high level international banker or ex-policy-maker to get the information firsthand and for themselves.

There are now just two reasons as to why the stock market should, could or would rally. Short-term, sentiment is a disaster. Many have or are moving to a majority cash position. That breeds the kind of sharp 2% hour- long rallies that we have witnessed on the news that China may buy a bond. But they don’t last.

The other is QE3 or some type of Central Bank bailout. The expectation of more free money is THE ONLY THING holding this market above the key support area and THE ONLY THING that could get any rally to stick. NOBODY wants to be caught short in front of September 21 because free money is all-powerful and will ramp the markets higher regardless of fundamentals.

But keep an eye out for a “real move” in the indices BEFORE news is officially announced. Because markets depend on government’s action, the news of what the FED will or won’t do is sure to leak. Someone in charge of a great deal of capital will know the news before we do and will take action.

The markets have become one giant inside-trading machine waiting for the next government pronouncement. When the word is leaked, everything moves up or down accordingly and in advance. Keep your eyes peeled!

In the month since the panic lows set in early August, the equity market is almost exactly where it started, near SPX 1140. In fact, this area has been visited no less than 5 times in the past month, but each time it is touched the major indices have rallied between 60 and 90 points in a few days. Let me repeat, we have bounced near the SPX 1140 area and rallied 60 to 90 points quickly five times in the past month, yet we are back to where we started. We’ve travelled about 600 points or over 50% of the current index value, yet have gone nowhere.

During this time we have had a litany of negative headlines and continuing headline risk. Lets face it, the news ain’t so good on almost every front and I certainly don’t need to recite them here. But we continue to hold at the very top (initial support) of last year’s summer trading range (1040-1140) before QE2 was announced. It didn’t actually begin until November, but was officially announced just before the Labor Day break and the market responded immediately, rallying almost 200 points, to 1225, before any bond buying was initiated.

I became cautious shortly after the November official beginning near SPX 1250 and downright bearish after that. You could say that I missed a nice, quick 100 SPX upside points. But my attitude was that the QE induced “buy the dip” mentality would be penalized with prejudice. During the final six months of QE2, the major indices traded in a 100 SPX point range and underwent classic Distribution. As it turned out, short term traders enjoyed the upside, but investors were wise to heed my warnings as  THE GAINS WERE NOT SUSTAINABLE and have almost all been given back AND MORE.

Forget about the news for a second. Is there a “Wall of Worry”. Of course there is. The problem is that the market had been climbing it for over two years without fundamental resolution. But forget about fundamentals. Let’s just “look at the market”. There has been a quick 200 point SPX pullback from the yearly highs. There has been a high degree of technical damage in the broad base of stocks. There is tremendous instability from day to day in stocks. There is significant resistance just overhead in stocks. There has been a “maybe” for more free money from the Federal Reserve. Throughout those statements of fact, only the “free money” comment is what most investors are focused on because it “saved” the market last year from the EXACT SAME FATE that we are faced with now.

Every day we are welcomed to another European or domestic crisis. Yet the major indices have not broken. They have not done so because they are waiting to see if Uncle Ben will give us another Trillion Dollars to play with on September 21. If he does, it is all good for the equity markets and we’ll gain and keep the 100 points that have not stuck. If he doesn’t, we lose the next 100 SPX points to test of lows of last summer, pre-QE2 at SPX 1040.

In the meantime, the lights are on but nobody’s home.