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Graham Summers’ Weekly Market Forecast (waiting on the Fed)
It all
happens this week.
This week,
we have Congressional elections on Tuesday and the Fed’s FOMC announcement on
Wednesday. Both of these events have MAJOR implications for the markets this week
and going forward.
Remember,
much of the market rally from early September has hinged on the belief that the
Fed will announce a large QE 2 program this Wednesday. For months the Fed
leaked information that this was likely to be the case. We also received
forecasts from Wall Street (specifically Morgan Stanley and Goldman Sachs)
stating that QE 2 ranging from $1-4 trillion was coming in November.
And yet, the
story has changed several times. Indeed, last week we had TWO major plot
twists. The first was a Wall Street
Journal story by Ben Bernanke’s “leak” of choice, Jon Hilsenrath stating
that the Fed was likely to unveil a small continued QE 2 program as opposed to
the consensus-expectation of $1-2 trillion.
This seemed
to indicate the Fed was trying to cool QE 2 expectations ahead of time in order
to stave off a Market Crash when QE 2 disappointed. Stocks did the obvious
thing given that more money= rally and less money =collapse. And once again, it
was obvious “someone” got the news before the rest of us (notice stocks fell
hard Monday and Tuesday BEFORE the WSJ story was public)
But then the
Fed did a total 180 and announced it would be surveying its Primary Dealers (18
mega-banks including most of Wall Street) for suggestions on how big and how long
QE 2 would run. This strengthened the view that a MASSIVE ($1+ trillion) QE 2
option was still on the table and stocks spiked up on Thursday’s open. Since
then, we’ve been trading sideways.
Indeed,
while the above paragraphs make it sound as though stocks have been quite
active, the reality is that the S&P 500 has been trading sideways for
several weeks now. On the five minute chart, we have what looks like a
potential triangle pattern forming (in red below)… however, this pattern is not
nearly as convincing as the general trading range between 1170 and 1190 (in
black).
Indeed, the
Big Picture this week is much the same as last and the one before. The S&P
500 has been in a HUGE trading range since May. It’s recently come up against
the top of this range at 1,190 which has served as MAJOR resistance as it
coincides with both former support for the April 2010 top AND the 200-week
moving average.
I mentioned
the significant of the 200-week moving average in last week’s forecast. This
line stopped the stock rally dead in its tracks in April 2010. Right now it
looks to be doing the same (a weekly chart of the S&P 500 with its 200-week
moving average is drawn in below):
How will
this all play out? I honestly don’t know. The Fed’s change in attitude last
week has left many investors scratching their heads as to what exactly the Fed
intends to announce this week with QE 2.
However, the
implications of whatever the Fed does are already clear.
1.
If the Fed DOESN’T announce ANY QE 2 program
this week, stocks will Crash.
2.
If the Fed announces a small or disappointing QE
2 program this week, stocks will fall, but not collapse, as the US Dollar
rallies.
3.
If the Fed announced a HUGE QE 2 program this
week, then stocks will explode while the US Dollar tanks and Gold goes
vertical. This move will also intensify the global currency and trade wars and
lead to a horrendous worsening of the US’s already fragile economy.
None of
these options are particularly attractive, but number three is absolutely the
WORST choice. Indeed, my biggest concern going forward is that the Fed might be
stupid enough to actually do it (the Fed survey of Primary Dealers last week
strongly hints at this).
My best
suggestion this week is to stay clear of the market. There are simply too many
factors at work (all of them with MAJOR implications for the markets) for safe
investing. So it’s best to keep on the sidelines and let the debris clear
before putting any capital to work.
After all,
one thing is absolutely clear, “someone” will know the Fed’s decision long
before us mere mortals.
Good
Investing!
Graham
Summers
PS. If
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I agree, I've set my expectations very high when I log on to Zero Hedge. I'm just a stupid hoosier in the mid-west and I could have come up with that conclusion.
Biff
also, using a 5 min chart to derive macro conclusions??
waiting for the fed is like waiting for your tumor to tell
you which twinkie to eat next. good luck with that.
Today's reversal might suggest some traders may have the news as to what the Fed is going to do on Wed.
I agree but which reversal, the morning reversal or the last 30 minutes?
http://www.bloomberg.com/news/2010-11-01/fed-likely-to-announce-500-bill...
A long article just to say "I don't know" therefore "I'm staying out"
here is what they, the fed, will do. until they are stopped!
.
http://www.youtube.com/watch?v=dDHErN3dOkc&feature=related
I don't believe the fed knows what's it going to do yet, I think they are going to buy some time and buy 100 million or more over an extended period of time.
Do you want to be the SuperSweet 16 year old's parents when she was promised a new red Ferrari and unveiling reveals a used dinged up Honda Civic??
And the markets roll over from 100 points up on the DOW...to solidly red across all markets....on election eve. Prepare for max pain.
Looks like I was right last week with my humble, non qualified prediction, markets will sell off no matter what the election or QE2 outcome will be! Buck was due for a rally, be it short in term then we'll see again, too many crazy people making insane decisions, no way to go by the week, rather by the day(24H)! I could, though, stand corrected by the usual 'sticksave"!!
My prediction . . . pain.
There. Fixed.
Since the run on money markets, when did Ben ever NOT so what the Markets want?
Right up till he didnt, which is likely soon. This is a game so stupid now even Tylers retarded midget monkey in diapers wouldnt touch it.
Abe Lincoln would roll over in his grave...
End the Fed...
Good luck with that. Lincoln set the stage for the re-imposition of the central bank - the third central bank, this time called the Federal Reserve, about 50 years later.
http://en.wikipedia.org/wiki/First_Bank_of_the_United_States
http://en.wikipedia.org/wiki/Second_Bank_of_the_United_State
This is like Fifty First Dates. And I'll bet all this time you thought the War to Prevent a Southern Divorce was all about freeing the slaves! Silly Rabbit! Follow the money.
http://www.amazon.com/Real-Lincoln-Abraham-Agenda-Unnecessary/dp/0761526463
Turns out it was about enslaving free men. I'm with you about Ending the Fed to be free at last!
'$1 to $4 trillion was baked in since Sept 1 run'....so $4 trillion then is the number baked in, probably already leveraged at least 20X, so unless Bernanke tops a $4 trillion Q/E announcement on Wednesday, a whole lot has to be removed from this overbuilt pyramid scheme.
I think Big Dumb Ben announces $100 billion in bond purchases x-month, which no one gives a flyin fuk about (it was all about diamond encrusted QE trillions) and we remove about 1,500 points on the DOW...if the brakes hold.
Could also very well be elections are derailed, and nothing at all happens on Wed. as the nation is in chaos under martial law from coordinated terrorist attacks.
Depend on nothing at this point.
end the fed.
.
Thomas Jefferson said in 1802:
'I believe that
banking institutions are more dangerous to
our liberties than standing armies.
If the American people ever allow
private banks to control the issue of their
currency, first by inflation, then by
deflation, the banks and corporations that will
grow up around the banks will deprive the people
of all property - until their children
wake-up homeless on the continent their fathers
conquered.'
Why would 3 be bad? Why not just get it over with?
This is what the economy needs. Only then will the debt problems get a chance of being solved?
Yes...yes I see your point...KILL the patient in order to SAVE the patient!
"We had to destroy the village in order to save it."
forget the patient, kill the physician. the bastard
bled george washington to death for christ sake!
He'll pick # 2, because a stable, falsely propped up market is a happy market if you're trying to buy time and you're lost you don't want to make any sudden moves. It's about stability.
The last thing Bernanke wants is a rallying dollar though. Anything he does has to prevent that.
Maybe somewhere in the range of 2.25/ 2.5. This is his tightrope, as in, he doesn't know what is baked in and what is a tipping point. Seems like he is into the art of this calculation. Either way, "We're waiting... Well"- Judge Smails
Looks to me like Bernanke baked in a diamond encrusted $4 trillion, and now wants to deliver a sub $500 billion number. The bloodbath tantrum Wall St throws will be epic.
I want a cheeseburger, french fries....YOULL GET NOTHING AND LIKE IT!! Judge Smails.
Meanwhile, the CNBC shills tout $1/2 Trillion as what street expects and will be satisfied with. While GS suggests $4Tr needed to make any meaningful impact.
Watch out below!!
Future result, market crash!