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Graham Summers’ Free Weekly Market Forecast (Fed vs Euro Edition)
This week’s
action can be summated in a single question:
Which is stronger, the Euro collapse or the
Fed’s Permanent Open Market Operations (POMOs) AKA money pumps to Wall Street?
These are
the two primary forces at work on the markets today. Thus, this week’s action
will be determined by one of the two:
1) The
Euro (the bearish influence)
2) Light
volume/ the Fed’s ongoing POMOs (the bullish influence)
Regarding
#1, the European currency has just
taken out Support at 132. It’s now closing in on its rising trendline of the
last six months. As I write, this line is crossing 130, which also coincides
with the low for the first leg down in this recent collapse:
As you can
see, a break here would herald a SERIOUS decline as the Euro will have taken
out its trendline AND its recent low. This would set the stage for a drop to
126 or so.
IF this
happens this week, the US Dollar will rally strongly (the Euro accounts for
over 50% of the US Dollar index). This in turn will take down commodities
(including Gold) as well as stocks.
This is the
bearish case for this week. We get additional support for this outcome from
several market leaders, which all look to be topping or to have already topped.
They are…
Emerging
markets:
Gold:
The Baltic
Dry Index:
While these
leading indicators suggest stocks are due for a serious correction of sorts,
one has to admit that thus far stocks have held up surprisingly well despite
the Euro’s first leg down.
This is
largely due to the second factor outlined above: the Fed’s ongoing POMO efforts
combined with the light volume, the latter of which will be a key issue this
week.
On that
note, this week we have two POMOs today, two again tomorrow, and one on
Wednesday this week. The total Fed money pump will be in the ballpark of $25-30
billion.
Given that
market volume will be extremely low due to most of Wall Street being on holiday
this week, we DO have the potential for a serious ramp here.
Again, it
all boils down to the following question:
Which is stronger, the Euro collapse or the
Fed’s Permanent Open Market Operations (POMOs) AKA money pumps to Wall Street?
Any time
before last week, and the answer would have been the Fed’s POMOs. However, we
DID have FOUR POMOs last week and stocks barely managed to close in the black:
So at this
point it’s a bit of a toss up. In general it’s best not to make a bold move
this week given the light volume. But if the Euro starts collapsing in a
meaningful way… LOOK OUT BELOW!
Good
Investing!
Graham
Summers
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Thanks for the post Graham.
(But if the Euro starts collapsing in a meaningful way… LOOK OUT BELOW!)
Yes I agree but strange days are among us.
Made some $ on the eu/us tonight, got one lot left on the banks moneys, I guess that why Im up so late.
Never ever underestimate the POMO, as much as I hate it but Im tired of getting
my ass kicked down the road. I'm bullish until it changes and then I'm not and I
can get out quick, or quicker than most bulls. POMO was right on schedule today,
made my weeks pay in one day. Im sorry folks but if you cant beat them join them or
stay out.
I love this guy's analysis, but he has been a permabear for months, and POMO is just undefeatable. Market keeps going up, doesn't matter what the analysts say. Maybe after New Year's there will be a change.
So POMO is undefeatable? WTF happened last May then?
Oh... I see, you say wait another couple weeks until January. : P
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Wow, this is truly scary and absolutely real consequence of the financial collapse of 2008. What can we do to stop it??
Forgive my boldness, but this has abosfuckinglutely nothing to do with subject matter in this ZH post, you boob.
Why stop it? Are you one of the people with a vested interest in a banana republic that goes around the world shooting people with drones operated by fat drones drinking big gulps outside of Las Vegas?
The banana republic and big gulp parts are indeed disappointing, but the shooting people with drones outside of Las Vegas.....well, that's one of the few things the federal government does that is authorized in our Constitution, so I'm good with that.
I've been noticing and watching that myself for a few weeks, and expecting the EUR to be the straw that causes a moderate to serious correction in equities, commodities, and to a lesser extent PMs (big buying opportunity coming right up!).
Question is, will the Fed choose to fight that as well... And still keep pumping equities to promote the wealth effect, or will direct it's firehose to one of the other raging infernos (muni bonds?).
Pushing people out of PMs and stocks back into treasuries might make sense to them at this point. Call me crazy, but even the Fed may abandon trying for a new bubble if it means saving the bond market instead.
I mean, we know they really aren't that stupid (seriously), but they are desperate (nothing to lose by trying, so why not?). So the question I have is, at what point do they quit pushing on noodle (A) and start pushing on noodle (B)? BWTFDIK...
Thanks Graham!
Indeed, I could use a Euro crash and US equities correction to go with that. The Fed should get on my side here, and start buying trashy private and state and local securities instead of monetizing the debt.