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Graham Summers’ Weekly Market Forecast (discounting Bernanke edition)
And so it
begins
The Fed’s QE
2 program begins this week. Combined with its ongoing QE lite program, we’ve
got $105 billion in US Debt purchases in the next four weeks alone.
The Fed
initially claimed QE 1 was an emergency measure that would save jobs and the US
economy. Amazingly this one time emergency measure (which failed to do anything
for the US economy, I might add) has now become a way of life for the Fed.
Indeed, QE 1
never really ended as the Fed continued juicing stocks every options expiration
week even after QE 1 was supposedly completed. And yet, despite this, the Fed
has now announced QE lite and QE 2.
Unfortunately
for Bernanke, the markets appear to have already discounted his stupidity… and
then some. In fact, his arch-nemesis, the US Dollar, has actually begun rallying ever since he announced QE 2:
Of course
this has nothing to do with an improvement in the US’s fiscal position. Rather,
it’s because Europe’s banking system is collapsing again, which is resulting in
the Euro falling off a cliff (the Euro comprises over 50% of the US Dollar
index):
I’ve written
before that the inflation trade was overcrowded. With stocks, commodities, and
precious metals all overbought and US dollar bearishness at or near record
levels (US Dollar shorts hit a record high a few weeks ago), this has the
makings of becoming a REAL issue.
Indeed, the
big picture here shows the US Dollar bouncing off its long-term trend-line
(black line below). If it US can break above resistance at 78 (red line below),
we’re likely looking at a significant rally which could kick stocks and
commodities right off a cliff.
Remember,
the world stock market is roughly $36 trillion in market cap. In contrast, the
currency markets trade over $3 trillion in volume PER DAY. Consequently, these
markets are far more liquid (and sophisticated) than stocks. So those who are
betting that the Fed will never let stocks fall need to be paying attention to
currencies as they are flashing major warning signs that the stock rally is in
for a significant correction.
Indeed,
stocks have already shown pronounced weakness in spite of the Fed’s QE 2, falling from an intraday high of
1127.05 on Friday November 5 to 1,199 where they are today. In fact, they look
to have just broken their uptrend
line of the last few months:
This latest
rally was built upon a series of gaps up. We’ve already closed one gap to the
downside. We do have support at
1,180, 1,165, and 1,145. However, if the US Dollar breaks above 78 we’re likely
to see stocks break through most of these to 1,145 in relatively short order.
On that
note, I expect this week will continue to see US Dollar strength along with
weakness in commodities and stocks. Keep your eyes on the Euro as it is driving
this trend. A SERIOUS breakdown there would result in a very nasty reversal in
the inflation trade in no time.
Good Investing!
Graham
Summers
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For all the talk about $ collapsing, DXY is up about 4% this year. I am thinking QE2 is out already, now what? Granted many commodities, including PMs and emerging markets are up average 20% maybe in USD year to date, but many are far off their 2007-8 highs.
I had not seen it this way at the time but now it seems clear the situation in 2008 was very similar to now, FED ket easing and easing and when Bear collapsed MSM as you say began pumping that worse is over, US economy was 'soft landing', health growth in EM, etc? Asset values remained high. We know what followed around the world.
In 2008 $ fell from 77s to 71s minimum, as oil skyrocketed, grains, EUR too.
My point is there was reason to expect hyperinflation in US in 2008 -however it is measured-Peter Shiff was writing about since much earlier. DXY fell, commodities, and PM rallied alot. Then they all came down. What is different this time?
2. related point.Many of u guys living in US , I think you dont understand how cheap everything is in the US, and have always been so. Things made or imported, even when exchange rates move a lot. Apple stuff is the same price in EUr in EU, even German cars like Mercedes cars pretty much so, with better specs, and I remember in 2003-4 when Euro moved high very fast, German dealers were reeimpoting US spec S class mercedess to sell in germany, and still make a profit. So the prices of such items cannot go easyly higher in US. Inflation in Food etc will be one time adjustment like with the QE most likely too. Do really expect price of corn, wheat go up 5% every month? Market are much more diverse, global, and efficient than in 1970s, it seems to me, that the potential inflation impact of qe2 has already been priced in.
So not much more to see here it seems to me move along.)
One more observation) It looks ironic that many of the people junking stocks, especially Apple on this blog, seem to be disappointed, even unbelieving when they stop rising-not much of a fall yet-? What were they expecting, trees dont grow to the sky, and $ will have some value afterall..
I agree with your second point. I read all sorts of complaints here about the rising cost of grocery staples and only wish I paid many of these "inflated" prices especially the way my crew goes through milk, eggs, cheese and coffee. And I'm in Canada where the loonie is near parity.
I've long heard that 72 is the magic number of doom regarding the USD Index - that is, any fall below 72 would be impending USD disaster leading to hyperinflation. Thoughts?
More on the Crash JP Morgan buy silver campaign.
http://silverstockreport.com/2010/shareholders-jpmorgan.html
Just bought 3 Koala 1oz silver coins on-line from the Perth Mint
https://www.perthmint.com.au/members/register.aspx
I am new at ZH but had been reading it for a long time. I like ZH as it is more based on facts and suits my way of thinking. I have been trading for the last 41 years.
Hi, David and welcome!
So, what do you think?
##Remember, the world stock market is roughly $36 trillion in market cap. In contrast, the currency markets trade over $3 trillion in volume PER DAY. Consequently, these markets are far more liquid (and sophisticated) than stocks
each time i read such nonsense i vomit.. hey stupid, so acclaimed investor
have you heard about leverage ????? its not $3 trillion in physical curr changes hands evert day,, its nominal value of contracts that leveraged upto 1:500,,,
if gov would allow investors buy stocks w 1:500 leverage volume would explode..
thanks god they are not that stupid as people who buy sell curr w/ 1:100 leverage...
alx
Only the truly stupid and greedy swing 1:100 or 1:500 leverage, that kind of silliness is reserved for idiot retail.
Whatever anyone thinks,I think we are in the unknown.In fact if I knew we were in the unknown I would have known.$ down,Markets up,Gold and Silver Hyperbolic within 6 months,baby.
All very valid points, however this is not a replay of Thelma and Louise..........no one, including the middle class wants to see the economy drive off the cliff.
Maybe I am wrong but I think it is go along to get along and that includes the Germans.......as long as the ball is in play the game is on.
Take the ball away and it is a new reality for all........which is also fear of the unknown.......or the past.
The technical analysts have been calling a market turn down since 10,200 on the Dow.
And from a technical perspective, what if this is a dead cat bounce on the USDX?.........$105 billion in POMO coming.
Not to forget that also the BOJ can now be a buyer of everything under the rising sun.
The difference here is that the Fed has stopped buying SPX futures. They stopped this on last Friday with the new QE II. Dow went up in anticipation, as did the Naz.
Oops! The SPX just sat there. Next thing you know, they were jumping ship like roaches.
That's why I think this is not a dead-cat bounce un the USD. The big players know this already.
How do you know they are no longer pumping the futures?
I suspected this (Hmm... Wealth effect not happening... Let's try something else!), but how to confirm?
I do not know how one would confirm this. I bet there are some floor traders who could tell you.
All I have is a feeling, such as the utter shock that came over the DOW and the Naz on Friday when the SPX did not bounce as they thought it would. Looking at the charts, though, they seem similar.
Hard to tell but it's the only thing that makes sense.
Healthy ramp after POMO today, but the market itself is not acting buoyant. No more jump at the end.
It does appear that POMO isn't pumping the markets the last two days. Charts seem to be giving a lot of very short term 'fake out' dip buy signals (broken trend lines to the upside fail, rounded bottoms fail, etc.).
I think it's entirely possible that they are trying to get retail to get in on this (they've been trained it's safe to buy every dip, after all...) and/or they are simply giving the big institutional investors a chance to get out of their positions relatively unscathed.
Perhaps the next strategy is for them to pile that money into the bond market? Someone on ZH said a couple years ago that if it came to it, equities would be sacrificed on the bond market altar...
Here is my (non Prechter inspired) elliot wave prediction: we pull back, possibly for another week but not below 10500 in the Dow, then back up to a new high before a meaningful crash. Robotrader's gonna be short after it's below the 20 EMA. :D
Minion, why do you pay any attention to what level the Dow30 is trading? If you asked me any time of the week what was the Dow trading, I couldn't tell you.
It has made me look like a fool a couple of times because someone will mention that I trade and the other person may say something like, "Oh, so do you think the Dow will reach (whatver...)?" and, of course, I'm all like, "Uhhhh."
Everyone I know and speak with follows the SPX, the Standard & Poors 500 Index. Five hundred stocks give you a much better reading of things than do thirty.
______
Also, don't forget to watch Fibonacci retracement levels. These are very simple, yet incredibly powerful tools for you to see, at a glance, what is going on in any market anywhere.
Your charting software should have this feature.
Why pay attention to equity indices at all? Aren't currencies now the fundamental movers affecting all classes of markets?
I am of the belief that for 4X traders, minus those of the giant or central banks (i.e., large and junior institutional traders and home-gamers...), the simplest measure of risk tolerance is the SPX/ES.
Currencies aren't the movers of asset classes per se because currency traders (again, not the central banks...) are only keen on the level of risk appetite in the marketplace.
Deciding which currency in which pair is the risk-on or risk-off du jour- and it is literally like that for the past week or so- is what makes you money.
Today, I think the "risk-on" currency is going to be the Euro and the best pairing for it is the USD as the "risk-off" of the two. The rest of this week and into next is going to be a massively "risk-off" trade.
Sell EURUSD with a break below 1.356.
:D
DOW 10500, SPY 112, NASDAQ 1900, RUSSEL 660 - pretty much mean the same thing. :)
You got it. There's is just some 'ooomph' missing, don't you think? Can't quantify it but I know it's there (or not there, as the case may be...).
Mood has changed. Frat boys getting tired of poppin tha colla'
Dow futures were up + 82 points, 11 hours ago when I was trading on ASX. But when HK opened, it dragged all indexes in red.
I've been wondering the same. Dollar up = stocks down, and POMO down the drain. With all the margin tightening on commodities, pissed off BRICs, and such, the only hole big enough to absorb it would be another OTC derivative blowup triggered by an insolvent state or PIIG.
"Indeed, stocks have already shown pronounced weakness in spite of the Fed’s QE 2, falling from an intraday high of 1127.05 on Friday November 5 to 1,199 where they are today. In fact, they look to have just broken their uptrend line of the last few months:"
Think you meant 1227.05.