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Down 500 the day before the downgrade? I call Bullshit!

There is a ton of stuff being written on the S&P downgrade of the United States of America. Please read Dr. Fly’s cogent analysis for the truth of the matter. But I’ll give you one better.

Thursday’s action, down 500 points? A day before the Downgrade? Coincidence? Are you kidding me? Whomever needed to know about the downgrade knew. I want the phone record of every call into and out of McGraw-Hill for the entire week and the personal cell phone records of anyone privy to the information. This could take the cake for the biggest insider trading scandal since Ivan Boesky except a trillion times larger.
Is the downgrade all built in? With Amateur Hour all around? Mostly, yes–especially in front of the Bernanke comments this week. Sure, government is broken. But the U.S.A. will honor its debts–even if they are paid in massively devalued dollars as a credit rating is about the likelihood of payback.

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What’s it gonna be, near-term?

I’ve heard the word “hope” about a hundred times in the media coverage of the markets last night You know what they say about “hope” as an investment philosophy.

After dropping double digit percentages THIS WEEK, is it smart to go home long, short or flat for the weekend? It is too late to short unless there is a bone-fide Black Monday crash.

Going long is certainly risky as the desire/need to “get liquid” will shred any support in any chart. And being flat is just that.

As you can see in my previous blog entry, big DOW support is at 11200, then 10900. I am willing to commit capital to those levels if reached. Also I have a feeling that there will be some bullshit rescue plan out of ECB and Europe. But more importantly, Uncle Ben speaks next Tuesday.

My guess is that our good Uncle won’t be market unfriendly after a quick thousand point drop.

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Market is adjusting for No QE3…CHART ALERT

Last year the SPX dropped 200 points one month after QE1 ended. This year the SPX dropped 200 points a month after QE2 ended.

Please review this DOW chart that encompasses the one year since Jackson Hole and the announcement of QE2. Please review the important technical levels.

As the desire for liquidity reaches its crecendo, these levels will remain important support.

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Read Charts? Look Carefully at this…

This chart was captured and published on July 7, 2011. It CLEARLY shows the DOW and my forecast, only for members of CreateCapital

This is NOT a pat on the back. Rather just a look back, to show you in NO UNCERTAIN TERMS that the information was there.

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What Now?

What can one say to market action such as this? That we were “cautious” about the reality of the economy? Investing based on being realistic was a dismal failure.

I’ve said many times that the entirety of the market rally, especially the rally from QE2, was fueled by free FED money. That didn’t change the endless parade of market prognosticators who told you–with a straight face–that the markets were telling you how strong the economy would be. Just suspend your disbelief and “listen” to what the market is saying. We know how that ended in the year 2000 and in 2008 and now in 2011.

Everyone knew and knows the newsflow but the stock markets action has had the remaining market participants hypnotized. The “Just Buy the Dip” crowd had won so many times that very few would bet against it, only the most secretive and deepest pocketed investors who could take the egregous losses doled out by the ever-levitating equity market. Payback is a bitch.

The latest government “crisis” certainly did not help the economy or the markets. And most everyone I know said that the market would rise once it had passed. It rallied for about a half hour before reversing wildly to the downside. And after about ten days down in a row, Europe is again in crisis. They are selling everything that is not nailed down, especially American stocks. Plus they–and everyone else–is buying gold.

And Ben Bernanke is nowhere to be found.

After spending trillions of newly minted dollars to “save” the system, Uncle Ben is incommunicado. QE3 is just a pipe dream. The massive stimulus that saved banks, the investor class and the markets–at the expense of everyone else–has been squandered. There is no “trickle down”, there is only melt-down. And equity investors are again left holding the bag.

It’s not like the signs weren’t there. They were. I did a hit declaring the Bull Market is Dead that aired on June 6. But I felt, and my work showed, that it died in May when it became clear to me that the stock market was in distribution. Nevertheless, the stocks that everyone loved kept moving higher. And just when the market looked like it would finally succumb to reality, we were surprised with the Magical Mystery Rally just as QE2 ended. What a pump and dump that was!

My long standing target was SPX 1200-1220 sometime in August. We are now here and there is wholesale liquidation and panic as we enter the tenth straight day to the downside. Investors are scared of another real crash. Certainly the fundamentals suggest that it could happen. But there has been tremendous damage and we are very close to the end of this phase of the correction.

I’ve said many times that the market is the same as last year only with worse fundamentals and 20% higher. That ends now that we’ve given back half of the gains from QE2.

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