Don’t Buy It – This Time Is Not Different
From 1990 to 1997, Kevin Haggerty served as Senior Vice President for Equity Trading at Fidelity Capital Markets, Boston, a division of Fidelity Investments. He was responsible for all U.S. institutional Listed, OTC and Option trading in addition to all major Exchange Floor Executions. For a free trial to Kevin’s Daily Trading Report, please click here.
Commentary for 2/10/11
The SPX made another bull cycle high at 1324.87 on Tues which is a +98.6% advance from the 3/6/09 667 low. The Fed continues its plan to inflate the equity markets as part of QE 2, and it has said that outright several times, so manipulation is now a Fed tool and that puts the US on par with the Zimbabwe market. You don`t want to be standing when the musical chairs game stops the music.
The SPX was +12% above its 200DEMA at the 1324.87 high and that is the zone that all of the previous corrections have started in the current bull cycle when the SPX trende above its 200DEMA. For example: The 4/26/10 1220 high was +11.6% above its 200DEMA and the subsequent decline was -17.2% to the 1010.91 7/1/10 low. It was +10% above at the 1/19/10 1151 high and declined -9.6%. In 2009 it was +12.1% at the 10/19/09 high and the following decline wa -6.5% while the 9/23/09 high was +11.6% above the 200DEMA and then declined -5.5% so there has been a cluster of similar exended levels before each correction so the current market is a red alert.
Markets go from fear to greed and economists/politicians are always debating and predicting Deflation or Inflation. Bernanke was significantly woried about Deflation 6-8 weks ago and now that agricultural commodities have continued to rise the politicians are all over him about inflation as we heard in his testimony to the House Budget committee yesterday.
The bottom line is that QE 2 has failed to stop interest from rising, because he can`t fool the bond market with his jaw boning and Treasury Bond buybacks, but it has inflated the equity markets, but now he is getting heat to end the game in June which is the QE 2 end date unless extended. Mid-June happens to be a very significant long term Pi date so it is a key time period in the business cycle and very often for the market[s].
You constantly hear the empty suits on CNBC and most economists who miss every turn that the Fed will have to raise rates to curb inflation but that really isn`t the case “When inflationary forces are due to the shortage in raw materials, rising interest rates will only force companies to curtail any expansion, so if the ability to produce is not expanded because of the rise in borrowing, that the shortages in supply will not be relieved unless demand contracts below production levels. Therefore a rise in interest rates can actually spark greater levels of shortages which will perpetuate higher levels of inflation until demand is seriously impaired” [Martin Armstrong 1988].
I have pointed out several times in the Trading Service that this market is like the 1970`s and the 1935-1937 bull cycle. The SPX is +98.6% low to high in 23 months so far, and will be a double at 1334. The only other SPX cycle to do that was the 1935-1937 bull market which doubled in 24 months. The 2002 -2007 bull cycle in the secular bear market that started in 2000 was +105%, but the economics were far better than they are now after the “panic of 2008” and the housing crisis, in addition to the pending sovereign debt defaults, which is a position that the US is fast approaching.
Many of the pundits continue to be extremely bullish, and you are hearing agian the tired and bogus line that “This time it`s different” Don`t buy it, and be on top of reducing equity allocations and/or have a plan on the downside so you don`t get caught in the next down -50% market cycle.
Have a good trading day!
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