A Fairly Reliable Contrarian Indicator

Market Outlook: Short Term Oscillation Point

Media Watch: Kudlow, Cramer, and Contrarian
Indicators

The Broad Market Outlook: The Fed’s Special Ops

There
is really only one force (besides irrational exuberance) that would account for
this and that is what may well be one of the most interesting clandestine
“Special Ops” carried out by the Federal Reserve. If the Fed has indeed given
up on lowering short-term interest rates for fear of deflation and instead, has
shifted to a strategy of buying longer-term bonds to drive down the long end of
the curve, the seeming contradictions are resolved:

The
policy would be highly stimulative for business investment because it would
lower long-term rates — a stimulus to the kind of business investment that has
been sorely lacking. It would also give both housing and autos one more leg up
the rally ladder because it would lower mortgage rates and auto loan rates. And
it would explain the rallying of gold, which would view the Fed policy as
ultimately inflationary and enhance the use of gold as a hedge.

We
believe that it is only under this Federal Reserve Special Ops scenario that
there is any possibility that the economy can rev back up to a suitable level of
growth, and that the stock market can break through heavy resistance on the top
end of this recent range. Therefore, we will watch the relationship of stock,
bond, and gold prices carefully even as we keep one eye on the monetary
aggregates and another on housing sector stocks. If ALL are moving up, then the
Fed will succeed in an event of historical proportions.

And by
the way, we shall watch from the sidelines for a bit longer.

Nothing much happens on the data front until a possible black-and-blue or red-white-and-blue Friday. In the black-and-blue scenario, GDP comes in below
expectations, new and existing home sales falter, and consumer sentiment fails
to hold its recent bounce. In the red-white-and-blue scenario, we get GDP
surging to an unexpected 3%, consumer sentiment continuing its upward
trajectory, and home sales partying like it’s 1999.

Media Watch: Kudlow and Cramer — The Ultimate Contrarians

Michael Santoli continues to deliver excellent market coverage in Barron’s
with
the appropriate cautions. His counterpoints are those wonderful contrarian
indicators, Kudlow and Cramer.

Check out this chart.  Note how these guys are absolutely uncanny at
picking the tops and bottoms of this trading range market. Except they always
get it exactly wrong.