This page has been archived and commenting is disabled.
Graham Summers’ Weekly Market Forecast (Dollar Rally vs. Bernanke Put Edition)
From
mid-August to early November the markets have operated based on the “Bernanke
put”: the idea that our esteemed Fed Chairman will do everything in his power
to keep stock levels up.
Indeed, with
QE lite going in full force and QE2 on the horizon, the markets became
dominated by the “inflation trade” in which the US Dollar fell and every other
asset (specifically stocks and commodities) rallied on a near tick-for-tick
basis.
However,
once the Fed finally DID announced QE 2 in early November stocks began to sell
off. Part of this was “selling the fact,” but most of it had to do with a
seismic shift occurring in the geo-political/ financial arena.
With several
major countries now raising interest rates (Australia and China) or planning to
halt their own QE/ Bailout efforts in the near future (the UK and EU), the
Fed’s QE 2 program signaled that going forward, the Fed would be on its own
regarding its re-flation efforts.
This,
combined with increasing political pressure hitting the Fed at home and abroad
(China has made it clear it will not tolerate US Dollar debasement), has
resulted in a seismic shift taking place in the markets. It’s almost as though
investors finally figured out that the Fed’s “free lunch” liquidity schemes
will eventually come at a cost, whether it be a US Dollar collapse, trade wars
with China, or more.
As a result
of this, stocks began a sell off almost to the day that QE 2 was announced.
They’ve since begun to trade in a wide range between 1,200 and 1,180 on the
S&P 500.
As I write
this, the market hasn’t been able to break below support at 1,180 convincingly,
largely due to the fact that the Fed is juicing the market almost every day via
QE lite and QE 2. On top of this, the majority of traders remain convinced that
the Fed can prop this thing up no matter what.
By the same
token, stocks can’t seem to break above 1,200 on the S&P 500 because the
whole world knows that QE 2 is the equivalent of a “Hail Mary” pass and that
the odds are high it will be end very badly (inflation, trade war with China,
US Dollar collapse, etc). Consequently, traders are not able to rally enough
enthusiasm to push the market higher even during the extremely light volume of
Thanksgiving week.
One thing
that COULD potentially override the “Bernanke Put” would be a major US Dollar
rally. On that note I want to alert you to the fact the US Dollar looks to have
broken out of its 6-month downward trading channel.
This move is
of HUGE import as it could very easily kick the “inflation trade” off a cliff.
As I’ve noted in previously essays, the US Dollar has been the carry trade of
choice for many traders since the June ’10 top. And with US Dollar bearishness
at record highs, ANY upward momentum in the greenback could accelerate rapidly
as the shorts are forced to cover.
Can a US
Dollar rally overcome the Bernanke put? We’ll find out this week. We have a
total of six POMOs this week (two today and one every other day). So the Fed
will literally be juicing the market by $6-9 billion EVERY day this week. If
stocks can’t remain afloat in the environment and the US Dollar strength
continues, then the markets are heading into some VERY DARK times in the near
future.
Good Investing!
Graham Summers
PS. If
you’re getting worried about the future of the stock market and have yet to
take steps to prepare for the Second Round of the Financial Crisis… I highly
suggest you download my FREE Special Report specifying exactly how to prepare
for what’s to come.
I call it The Financial Crisis “Round Two” Survival
Kit. And its 17 pages contain a wealth of information about portfolio
protection, which investments to own and how to take out Catastrophe Insurance
on the stock market (this “insurance” paid out triple digit gains in the Autumn
of 2008).
Again, this
is all 100% FREE. To pick up your copy today, got to http://www.gainspainscapital.com
and click on FREE REPORTS.
- advertisements -
Excellent! But really, you want those insiders on your side when you're shooting at the crowds--if nothing else, as human shields.
gotta hand it to them, they have so far...
That reminds me of the comment made by a man who jumped from the 80th floor of an office building, as he passed the 10th floor windows: "So far, so good!"
"Great time to buy equities".. that is what Abby Joseph Cohen was telling everyone this morning on CNBS. She sees a target on the SP -1350. Market is cheap!
She would'nt be telling a porky pie would she?
I believe that doing the opposite of what Abby spews has been pretty profitable for swing trading.
Surely you can't be serious?
B-i-n-g-o
I am interested in what people are doing best prepare themselves for the ultimate decline: be it alternate energy, community resource building, alternative policy making, practical knowledge.
I want to understand what is happening in the economy and finance - the news that we cannot get from main stream media.
Try here: http://www.shtfplan.com/
They can be a little over the top at times but depending on your level of anxiety, you can find some useful info.
Do what the Banksters did in Weimar Germany. They moved the Mark into the Dollar. What currency should we move ours to? My guess is either the Swiss Frank, or even the Zinbabwe Rand (Or whatever they now call Rhodesian currency).
This assumes POMO is going into US stocks.
It could theoretically be going into ANYTHING, e.g. muni bonds or even European equities.
http://thetaildoesnotwagthedog.blogspot.com/2010/11/where-did-pomo-go.html
Or bankers' pockets
$6-9B per day, excellent news for corporate insiders, as there will be plenty of money to cover their record insider sales "for tax purposes".
And speaking of seismic shifts:
Citing Deficit, Obama to Freeze Federal Worker Pay Two YearsPeak market momentum may have been seen across the board, particularly in silver
Silver Prices Surging on Near-Record Demand