Here is a six month chart of the SPX. Look at our trading range. Look at how we continue to define the upper and lower boundaries of our range.

Right now, as we await Pavlov (Bernanke) to feed us, we are sitting smack on the 200 day moving average and smack on the middle Bollinger Band. This simply means that we are in neither a Bull nor a Bear market and that we can easily go either way, to the top of the range or the bottom. Then lather, rinse, repeat.

I find it interesting that Pimco’s Bill Gross, the guy who sold all his Treasuries before a monster rally, has declared that Bernanke will introduce QEIII at the Jackson Hole conference in August, just like he did last year with QEII. But last year the market went down in anticipation of no new stimulus and everyone bet against a rally. Once more QE was hinted at, it was off to the races.

This year, everyone will expect more stimulus and free money later in the year. So my guess is that they do not sell and we do not give most of the gains from QEII back. Instead, I bet we give back about half. That would test the low 1200 area.

KLIC 6%
AVD 7%
AA 4%
HLX 7%
ABB 4%
AG 11%
TSLA 6%
AEM 7%
FTK 6%
TZOO 7%
PCLN 6%
AMZN 7%
BIDU 8%
RIMM 9%
SFLY 6%
AMD 5%
BORN 17%
C 3%

I’ve postulated that all economic data is meaningless. The EuroZone is meaningless. Even earnings don’t matter much (but expectations do).

What matters is near-term market action. The news can be disasterous and if the market rallies, everyone wants to buy something. The news could be encouraging or even fantastic but if the market is lethargic then investors and prognosticators will be too. Almost any near-term forecast will fit into the near-term market action.

The major indices have been holding above major support and the SPX has held above the heralded 1250 area throughout this multi-week corrective process. Any rally has appeared to have been of the Bear Market type; short, sharp, and given back quickly. But late last week and this week looks like something else.

Since most everyone has been swayed by weak market action, the majority of market prognosticators would have you believe that the end of QEII would bring about a freeze in the market because without the FED, all the money would have run out. But like last year, when the market “just had to crash”, it instead was saved. Markets now are rallying into the end of the month/quarter/half and today in particular is a “rip your face” kind of day.

The press would have you believe it’s about Greece. But it isn’t. The rules will change if they have to. It’s about letting the steam off, forcing out the most complacent speculators and then jump-starting the game again through the upside breaking of technical resistance. That and only that is what changes the tone and tenor of the market action, economic outlook and sentiment.

This index was the largest gainer of the majors, up over 160% from trough to peak. It is quickly moving to test the long-term uptrend, which is still intact.

I expect that we will marginally break key uptrend support and get the majority really scared before beginning a more stable bounce.

Please review the monthly chart over the past decade for the big picture:

I have “only” two complaints today and I’m not looking for a pat on the back…I must need some attention…

As I’ve mentioned before, part of a Strategist’s job is to eat shit. Nobody remembers anything  you ever did that was correct. Call the bottom? That’s your job, asshole! Get cautious near the top? You missed the best part of the gain, idiot! Sure, I’ve got my share of losers and I make plenty of mistakes. But come on! We’ve got the intermediate-term market timing thing down ‘well’ at CreateCapital.com

How about predictions? At each New Year every market prognosticator makes a list of idiotic predictions. This year I made only one: that this year year would look technically identical to last year. Has anyone said, “good job”. Nope. Now everyone realizes that it is the fact, Jack.

Another thing pisses me off to no end. I was reviewing the latest Goldman Sachs technical review. See it here. Goldman fucking Sachs constructs their charts that look exactly like mine. Simple and elegant, I must say. That is why I constructed them to look like this and I have not seen any the resemble mine, save GS. Hey Lloyd! I can do it better! CreateCapital.com

There are precious few original ideas on “Wall Street”. Here at IBC and at CreateCapital, you have a plethora. I don’t want to hear anyone complain!

Many policy-makers and market prognosticators alike have written about how Ben Bernanke and Tim Geithner “saved” the economy and markets through their unorthodox stimulative policies. Dropping digital cash from phantom helicopters was designed to liquefy a banking system that was overwhelmed with huge losses brought about by the egregious mis-allocation of capital. Instead of bank Nationalization, the government made up a good portion of bank losses and allowed the TBTF entities to hide the rest.

In a meeting a few months ago, the Fed Chairman proudly stated that the Russell 2000 had doubled from the Crash lows. When that was said, it became clear to even the most Perma-Bullish, that the goal of policy-makers was to buoy the stock market at the expense of everyone and everything else, primarily anyone with nice, safe cash. This is something we had realized during QEI, but most of the important people interviewed on Biz-TV said otherwise. Only Crackpots put forth this arcane theory. After all, the market was running up, day after day regardless of any news, fact, opinion or forecast. The free money regime overwhelmed and ran over anything and everything, and if you didn’t get on board, you were a loser. Never mind the concept of risk.

We are now dealing with commodity demand destruction due to artificially high prices built on speculation, and not just in oil–in almost all commodities. This speculation buys inflation and that is exactly what the Federal Reserve wanted. They wanted inflation to combat the disinflation in property values that continues to this day. In addition to “artificial inflation”, the markets are now dealing with the end to QEII, which has been fabulousfor the upward trajectory of our markets. The end result of that fabulousness is that while it is true that you can buy and sell at a given price anytime the market is open, and that those prices are liquid and “real”, the fact is that the construct of the market is not. It has been “given” the raw fuel–cash–that is designed to boost then levitate asset prices.

So here we are, with an 8% major index correction under our belts and the eighth week lower. Some say it is unprecedented. But considering the unrelenting, unyielding attack higher in the major averages lasting from September 2010 to May 2011, it is simply a roughly equal and opposite reaction. This is not really about Greece or China. It is about the withdrawal of the heroin, the free money designed to plow into liquid markets. Now, markets must survive without it, but they only can at lower prices.

Interestingly, now that no growth and much less stimulus is being built-in, I have begun to identify stocks that I want to accumulate, at the right price, of course. Just like last summer. Remember?

Expect that the major indices will give back about half of the gains from QEII. We’re already half-way there!