Fed Manipulation and Market on Crash Course

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 10/29/10

The SPX finished last week at 1183.08 or +0.6 and it was the 8th straight week of higher highs and lows. There has been an 8 week symmetry since the 4/26 1219.80 high and the 8.6 year cycle also came into play at the 1010.91 low [7/1]. For a cycle to be valid it should be constant in all time periods and also multiples of the 8.6 year cycle [M. Armstrong].

This week is also the 8.6 week, similar to the 8.6 week decline from 4/26 to 7/1, and it is obviously very O/B on a momentum basis, as evidenced by the SPX weekly 5RSI at 83.08. There is also price symmetry in that 1184.58 is the 1.618 Fib extension of the 1129.24-1039.70 leg [8/9-8/27], and the 1.272 Fib extension of the AB leg [1010.91-1129.24] measured from the 1039.70 low is 1190. That means there is Price, Time, and Momentum symmetry, and these are the measurements that make it a possible reversal zone.

The market rallied from the 7/1 1010.91 low on QE1 and then went vertical since the 8/27 low on anticipation of QE2. The bottom line is that market has been manipulated by the Fed as I said in the previous commentary (read it here), and I also quoted the senior official at the Fed [Brian Sack] who said that the Fed’s balance sheet policy can still lower longer-term borrowing costs for many households and businesses, and it adds to household wealth by “keeping asset prices higher than they should be” and they will be at higher levels than intrinsic value”.

The perception by those that don’t have a political ax to grind feel that the Fed’s QE 1 and 2 are not accomplishing the intended results, and Bill Gross of PIMCO said the other day that the Fed’s QE is one big Ponzi scheme. The SPX slowed down this week after the Fed indicated that QE2 might not be as big as intended, and that followed the GS distribution to clients that QE2 would be bigger than expected.

GS is wired to Washington and they wouldn’t have put that out unless they were sure of it. It looks like Bernanke might have toned it down to placate the Socialists after the G-20 meetings that were complaining about the US devaluing the Dollar [which we are].

I have included the SPX weekly chart and you can see that the market is obviously trading with Fib time symmetry since the 4/26 high, despite all of the daily hype, bogus government economic statistics, including this morning’s last ditch bogus GDP attempt by the Obama gang to save the House, and that ain’t going to happen folks.

The .618RT to 1576 from 667 is 1228.76 and it hit that zone before with the 1219.80 high which was a +83% gain high to low, and the .707RT is 1309.66. We are in a secular bear market, yet the “herd” is mistaking the Fed’s inflating asset prices with a new bull market, and that won’t be sustained. The period from 2000 to 2016-2017 is a secular bear market, and only the active investors make money in this kind of a market, not Buy and Hold investors, so you better have a plan.

The mid-term elections are on Tuesday [11/2] and Bernanke makes a QE2 statement the following day. The House is a lock for the Elephants but most of that is in the market, as is QE2, so there might be some “sell on the news” market action. The SPX has been consistently trading inversely to the US dollar, as have Commodities, and the US dollar is extremely O/S, so the November surprise will probably be a reversal in both the dollar and equity indexes.

 However, until the SPX closes at least below the 5 WK EMA, which is 1169.35, the direction remains up, and not a short play.

SPX Chart

Have a Happy Halloween!

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