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Graham Summers’ Weekly Market Forecast (Resistance Edition)
Traders gunned the market higher over the last two weeks courtesy of
- Short covering
- The Euro rally on French liquidity concerns
- Rumors of yet another Euro bailout
Regarding #1, short interest on the NYSE was at March 2009 levels going into this rally. With this kind of short interest, even a small rally will become explosive as the shorts cover (buy stocks)… which sends the market higher… which in turn results in more shorts cover.
This same dynamic is playing out for large financial institutions in France resulting in #2. French banks are facing major short-turn funding shortages. As a result they are selling long positions and cover shorts to free up capital. Because of this, the Euro is rallying hard, just as the US Dollar did in 2008 when the US banking system was in collapse.
Because stocks are moving in lock-step with the Euro, the Euro move has pushed stocks higher in a big way.
Finally, regarding #3, it is obvious to anyone that the EU is completely out of ideas that will possibly work. The kick the can mentality is ending. I know Merkel and Sarkozy claim to be working on some great plan to fix things… but the reality is that if those countries do go for the leveraged EFSF then they will lose their AAA status… which comes with its own set of major problems.
Will France and Germany go “all in,” and choose to lose their AAA status to bailout Greece again? Hard to believe that will be the case. And we see reports emerging of Germany preparing for a Greek default and bondholders taking a 60% haircut.
It is literally a case of “pick your poison.” If German and France backstop Greece again with the leveraged EFSF, they will lose their AAA statuses and we’ll see a bloodbath in Europe. If they don’t backstop with the leveraged EFSF, we’ll see a bloodbath in Europe.
With that in mind, the Euro is coming up against major resistance at 140:
We’re facing a quick correction here to 135 if not 130 in short order. Long-term I expect we’ll see Greece default followed by a domino effect in which all bankrupt European nations restructure. When this occurs the Euro will break below the 2010 lows of 118.
In terms of stocks, we’ve been in a large trading range between 1,125 and 1,220 on the S&P 500. We’re now testing the upper end of this range, which sets us up for a return to the low end of the range.
Given the economic backdrop in the US and Europe, I remain convinced we’re breaking out of this range to the low side. I’ve warned to get defensive for over a month now. This week looks to be a good time to add to shorts as I expect we’re going to likely see a top this week as earnings season kicks into higher gear and the usual options expiration nonsense ends.
However, larger picture, I believe we’re facing systemic risk… as in another 2008 event. The most likely culprit for this will be Europe, which is literally on the ledge of a cliff.
Indeed, the facts remain that Greece will default. End of story. Greece is broke. The market knows this which is why it’s pricing a Greek default at 100%.
Once Greece defaults, Spain and Italy will follow suit. When that happens we’re facing a situation that will make 2008 look like a picnic. The powers that be know this… which is why the IMF has warned we are facing a “global financial meltdown.” And the Bank of England says we’re facing the “worst financial crisis in history.”
Folks, these are the guys in charge of holding the financial system together… warning that we’re facing a meltdown. Did they do that in 2008? Nope. So how bad are things going to be? BAD.
On that note, if you have yet to prepare yourself for what’s coming, now is the time to do so. Whether it’s by moving to cash and bullion, opening some shorts, or simply getting out of the markets altogether, now is the time to be preparing for what’s coming (remember, stocks took six months to bottom after Lehman… and that was when the Fed still had some bullets left to combat the collapse).
And if you’re looking for specific ideas to profit from this mess, my Surviving a Crisis Four Times Worse Than 2008 report can show you how to turn the unfolding disaster into a time of gains and profits for any investor.
Within its nine pages I explain precisely how the Second Round of the Crisis will unfold, where it will hit hardest, and the best means of profiting from it (the very investments my clients used to make triple digit returns in 2008).
Best of all, this report is 100% FREE. To pick up your copy today simply go to: http://www.gainspainscapital.com and click on the OUR FREE REPORTS tab.
Good Investing!
Graham Summers
PS. We also feature four other reports ALL devoted to helping you protect yourself, your portfolio, and your loved ones from the Second Round of the Great Crisis. Whether it’s my proprietary Crash Indicator which has caught every crash in the last 25 years or the best most profitable strategy for individual investors looking to profit from the upcoming US Debt Default, my reports covers it.
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Figuratively would have worked better. Literally in this case says they are drinking poison right now.
The Good News is Jean-Claude Tragedy, Chief of the ECB (European Communist Bank), has been flapping around the Eurozone for 2 years like a headless chicken clucking about "stability... fiscal stability ....our stability plan is going according to plan" and ushering bailouts from all quarters
The Bad News is he's been bailing out the holes in all the Eurozone hulls the wrong way... namely he's been adding water (debt) to the already water-logged (debt drenched) vessels of the socialist fleet
Did nobody in the entire Eurozone not stop to think for one minute adding more debt to a problem of debt was the dumbest fuking idea on Earth?!!!
Oh one more snip of good news: Jean-Claude Tragedy is retiring. Damn if he won't be missing all his good work crumbling into the Eurozones new socialist designed and public-private partnership built sewer systems (where all peanut-brained loony lefties ultimately retire)
Nope, I guess nobody didn't not never think of that.
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Every time Graham Summers misuses the word "literally", Ben Bernanke prints another thousand million Federal Reserve Notes.
literally just laughed my ass off
Good news, everyone! Bankers and politicians are FINALLY going to be dropping dead do to their drinking poison.
The bad news is that Europe is about to fall into the ocean, making the Canary Island Megatsunami look like the fountains at the Bellagio!
"Do"? Or did you mean "dew"? Due you work for Graham Summers?
Well met, sir! Hoisted by my own petard!