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Graham Summers’ Weekly Market Forecast (Tres POMOs edition)
All the
pieces are in place for a significant top to form and a potentially devastating
reversal to begin. To wit, stocks have spiked up over major resistance at 1,131
on the S&P 500 just as the RSI nears an overbought reading.
Meanwhile
investor sentiment has swung by to wildly bullish with the Daily Sentiment
Index showing 83% of investors bullish on the S&P 500 while the AAII survey
shows 50% of investors bullish and only 24% bearish. We also have corporate
insiders dumping shares as fast as possible to cash out of the market.
With most of
the rally of the last few weeks coming from short-covering and Fed pumps (more
on this in a second), the ball is now officially in the bulls’ court if this is
going to prove to be the start of something bigger. So far volume has failed to
confirm the rally. Indeed, the volume of these last few weeks has been the
weakest of the year.
However, there is one issue, actually three issues which could result in the market holding up… those three issues
are the Fed’s three POMO dates for this week: Monday, Wednesday, and Friday.
As I write
this, the Fed has just closed its first POMO of the week, a record $5 billion.
Stocks, as one would expect, have exploded higher as the Fed Primary Dealers
find themselves with $5 billion in new capital with which to leverage up and
gun the market higher.
This charade
continues several times a week into the November election, as the Fed
desperately tries to keep stocks afloat. It might
just work seeing as the Primary Dealers essentially ARE the Fed and obey the Fed’s “stocks must go up to reflect a
strong economy” thesis.
On that
note, the NBER has just announced that the recession officially ended in June
2009. I’m sure the 40 million Americans on Food stamps and the 17% of the work
force that is unemployed or underemployed will be thrilled to hear this.
Of course,
this marks the first time in over 100 years that a recession “ended” without
GDP besting its previous peak. Seeing as the NBER got the whole term wrong to
begin with (we’re in a DE-pression, not a RE-cession), I’m not putting much
faith in their claims. After all, the US GDP number has enough holes in it to
drive a truck through and is constantly being revised lower after the fact.
Regardless,
investors are getting bullish, economic data is worsening, the election looms,
and the Fed is pumping the market for all it’s worth. If the bulls decide to
take us to absolute Looney Tune Land like they did from Feb-April ’10, then the
next lines of resistance are around 1,152 and 1,166. Support, should stocks
roll over, is at 1,130, 1,120, and 1,110. These are the key lines to watch.
Personally,
I think we’re going to see a final spike (which is likely already occurring)
before stocks roll over and give way to a sharp reversal. This rally has done
all it needed to in terms of converting investors back into bulls. And you must
remember that tops are formed with good news, not bad news.
It’s clear
the underlying fundamentals of the US economy are worsening. Europe is now a
domino game with Ireland toppling after Greece and other countries soon to
follow. Investors are fleeing the stock market, having pulled some $50+ billion
funds over the last 19 weeks straight. And even investing legends are closing
up shop (Druckenmiller to name one).
In plain
terms, this environment is ripe for a massive reversal, something to catch
everyone off guard and kick off a reality
check for the market. I think it could start this week.
Good
Investing!
Graham
Summers
PS. If
you’re worried about the future of the stock market and have yet to take steps
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Just a few more years of POMO's and then, finally, the reversal. No disrespect to the author, just a little sarcasm out of my own frustration with this fake market.
Is anyone, besides Joe Granville, bullish?
I always enjoy reading Graham's posts. I'm as bearish as they come, but am waiting for the party to start before I arrive. Been burned too many times in the past for being early. 3 POMOs this week sends the message that the PTB will step on the accelerator as often as necessary to keep this sucker rolling at a good clip, at least until the curtain has come down on the election farce.
All_Is_Well: Truck traffic should be picking up this time of year, or otherwise Christmas will be cancelled. No Santy Claus=death for retailers.
I agree with everyone here except here in the NE I've noticed a pickup in truck traffic on the major interstates. I must admit it gives the perception that things aren't so bad. Jmho.
I'm looking at early October as being the reckoning point. The pump through 3Q is going to be probably the last of it for a while. I see both stocks and commodities spiking down dramatically in the face of a massive wave of redemptions. HFT, "corporate greed", etc. will be blamed, with a conveniently prescient movie to accompany it (sequel to Wall Street).
first you say this rally could continue to the elections and then you say it could end this week? LOL
LOL, indeed. I find myself starting to hum the old Hubert Humphrey tune, Happy Days are Here Again!!
When did our markets turn into a Groucho Marx movie script?
"Happy Days Are Here Again" is a song copyrighted in 1929 by Milton Ager (music) and Jack Yellen (lyrics) and published by EMI Robbins Catalog, Inc./Advanced Music Corp.[1] The song was recorded by Leo Reisman and His Orchestra, with Lou Levin, vocal (November 1929), and was used in the 1930 film Chasing Rainbows. The film was about Drunks, Bootlegging and Prohibition [2] and the song was the finale, celebrating the imminent repeal of Prohibition.
Today, the song is probably best remembered as the campaign song for Franklin Delano Roosevelt's (FDR) successful 1932 Presidential campaign. Since FDR's use of the song, it has come to be recognized as the unofficial theme of the Democratic Party. The lyrics suggest optimism and buoyancy.
my god, graham didn't summate this week....i am now concerned about the rally....
even without summating, he is always worth reading...
isn't there an unusual spread also between S&P futures and indices today, index is going up with futures trailing 5 points behind...?
on lite volume all "mathematics" are being taken OUT!
i kknow my qs don't matter shit but just sharing an observation
if stocks are in ramp-up mode, shouldn't futures rise ahead of them? Now they are following like an ETF, approx. 5 points behind...
How could the futures possibly predict the a market that is pushing on a string? Overbought has no meaning anymore. There are at least two EU countries walking the plank for the greater good. US banks are finding that liquidity is now hard to come by (for them). Mark to Myth is coming back to haunt them. Ask yourself why the Fed is adding so much more debt than their funding requires. Sounds like hoarding liquidity to me, but why? Tick...tick...tick
this is not news, it's the normal bear market.
http://covert2.wordpress.com
On another note, has anyone seen this story on the gulf stream "loop failure" presumably caused by corexit (BP oil) ?
Trying to verify... http://projectworldawareness.com/2010/09/life-on-this-earth-just-changed...
Hot Shakedown,
I had not seen it. THANKS for the posting.
I was well aware of the threat because the breakdown of that circulation was expected as a result of golbal warming. That circulation, which keeps Scandinavia and the British Isles at a more moderate temperature has been a prime concen within the overall issue of global warming. This was eventually going to occur because, not only the American public but also the developing world won't accept the personal disiplines required to keep it from happening.
The earth has had hot and cold periods forever. It is generally accepted that the coal beds were laid down by tropical plants during prehistoric periods that the the atmosphere had such low O2 (and high CO2) that the leaves didn't decay. Great tropical forrests, consuming CO2 and emitting O2 waste existed for thousands of years.
And within our historical record, George Washington crossed the river at Trenton on Christmas eve with ice in the river and ice forming on the gunnels of the boats.
I personally have seen a photo from the late 1920's of ice on the river at St Louis with sufficient thickness to support cars driven out onto the ice.
If we do have another cooling period ("Ice Age"), it will take at least hundreds, if not thousands of years to cover North America. People will just have to adjust.
It will be ironic if the BP oil spill, created by a management from people with the most to loose, resulted in development of extreme cooling in that part of the world.
As usual, those who are negative the market have facts and figures and reasonable arguments to support their thesis. Bulls have hope and the Fed behind them. In 2008 facts and figures won and the Fed and bulls lost. I am sticking with the facts and figures crowd again, although I am currently underwater on my shorts, but that was the case in 2008 as well....until
As usual, those who are negative the market have facts and figures and reasonable arguments to support their thesis. Bulls have hope and the Fed behind them. In 2008 facts and figures won and the Fed and bulls lost. I am sticking with the facts and figures crowd again, although I am currently underwater on my shorts, but that was the case in 2008 as well....until
I hear you. NASDAQ is taking me for a ride.. but my seat belt is still tight and I ain't going anywhere with these artificial pumps in place.
the downward trend line since 2007 for s&p is still intact, but looks likely to be broken 1175, this week?
http://markets.ft.com/tearsheets/performance.asp?s=599139&ss=WSODIssue&ftauth=1285015576413
FTSEurofirst 300 Inde already broke the downtrend line;
eem, hsi all did the same;
...I'm in the same boat but am extremely worried that the Feds may really gun this thing up. They have embarked on what I would see as a criminal path and I fear that they will now carry their actions to an extreme.
hang in there bubba, won't be long now!