GDP estimates slashed. Gasoline usage drops. House prices at new post-crash lows. Production and consumption all dropping like a stone. Europe continuing its slow-motion crash. Japanese auto sales down 70%. Is it surprising considering that oil romped up 15% in a month and that gas has gone from 3.25 to 4.00 per gallon, let alone that the third largest economy, Japan, is frozen solid.
With one month left in the “biggest subsidy in the history of the world”, QE, markets welcome any news that could hint at the continuation of the free money regime. For two years, the worse the number, the higher markets went in anticipation of further QE. And the FED has not disappointed. And though Fed-heads all say that the barrier to QEIII is high, it has certainly not been ruled out and so the market “hopes”.
Today the explanation for the risk-on trade is that Greece is getting another “bailout”. Why would anyone want to solve the problem if delaying it continues to bring a positive market result? “Extend and Pretend” continues unabated and the market continues to hover near the recent highs.
When examining the major indices, I am struck at the “sameness” of so many. For example, the Nasdaq Composite, Russell 2000 and the Dow Transports all look remarkably similar. All have rallied to post crash highs with the Transports and the Russell at marginal new all time highs and Nasdaq at the highest level since the Dot Com Crash. Yet all have made almost perfect long-term double tops.
I know, you’re going to tell me that any technical pattern matters not as the only pattern that matters is the trend. After all, the trend is your friend. (K.I.S.S.). But with the summer slowdown already upon us, and the end of QEII directly ahead, the level of risk is rising every day that we traverse our trading range. After all, the major indices have been locked in a trading range since the beginning of the year. Many call it a Consolidation and pause as we continue to hover above our most recent breakout. But is sure smells like Distribution to me.
Markets and the broad breadth of stocks move each day subject to the whims of the DXY and Euro. Markets for stocks and commodities are easily manipulated based on pushing the Dollar one way or the other. And recently the markets have been counter-trending. That means the primary trend remains intact and few want to bet against a trend that has worked for so long and is based on $7B in free money almost every market day. But time is running out.
Many expect the end of QEII will be met with a crash. I bet it ends in a whimper. And then, when you least expect it, Whap!
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