Those in Power Can Trigger, But Can They Sustain?

Those in Power Can Trigger, But Can They Sustain?

Courtesy of Lee Adler of the Wall Street Examiner

(Excerpt from the Wall Street Examiner Professional Edition)

(ouch)

Looking back at crashes of the past, there’s usually a day like today somewhere along the line before the thing has run its course. The power structure desperately needed a rally, and in illiquid markets it doesn’t take much to get one started. Sustaining it for more than a day or two is “a whole ‘nother story”, and there’s little indication in the charts that this one can be sustained beyond that. Short term indicators suggest a possible spike rally that could carry a bit higher, but intermediate indicators along with 13 week cycle projections and time counts suggest that the market will make a lower low within a couple of weeks.

Cycle based stock screening data The first sign of a rally would be a couple of days of increases in new short term buy signals. Today was day one. Will tomorrow be day two? Stay tuned. Note that the number of new buy signals on the 13 week cycle remained at 0, which doesn’t bode well for the expectation of a meaningful rally....

Look at the 2008 crash, the 1987 crash and the 1929 crash. Days like today are common. This is an illiquid market and has to be traded on a minute to minute framework at this point. It’s not the time or place to be adding to leveraged short positions.

Crash Analogs

In the 1929 crash and the 1987 crash, the first bottom was on day 12 from the prior short term peak. In 1929, it turned around that day and rallied hard on day 13 and 14, then fell to a lower low through day 19-21.

1929

In the 1987 crash a secondary, higher low was reached on days 16-18.

1987

Today

In each case, the initial bounce came when the Dow touched the 1000 day moving average. 1987 was just a violent crash within a secular bull market that resumed in 1988. 1929 was only the first leg down in history's worst bear market. Today's market has more in common with 1929.  

There are more charts and details on the market's technical structure and outlook in the Daily Market Update in The Wall Street Examiner Professional Edition. Click here to try WSE’s Professional Edition risk free for 30 days! 

Picture (out of context but otherwise apropos) via Jr. Deputy Accountant, who writes "Finally I have a reason to use "Emergency Escape" by Chen Wenling."

Comments

[chinawholesaler]

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[Bartanist]

I guess their solution is: whoever can borrow should borrow, feeling safe that 2 years is a ling way off and then stick the money in anyting that will yield more than the cost to borrow.

Unfortunately that means that only the TBTF banks and their corrupt cronies will be able to take advantage of the free Fed money and infinite alpha.

[Gold Dog]

Goldman lied?? Who can a guy trust anymore?

[Snidley Whipsnae]

Charts aside, I would like to point out, once again, that the rally yesterday was triggered by a news release by GS which included false information that the Fed was proceeding with QE3.

The initial Fed release caused a sell off in equities to begin, which was reversed and triggered a ~ 400 pt rally when GS issued their false report. GS went beyond rumor and lied and stock chasers poured into mkts on what they perceived to be 'news'.

Sometimes the answer is so simple and obvious that we overlook it.

I don't think that investors, assuming that any remain, will continue to chase equities after mulling over what the Fed really said. Of course new bs will be released as required so who knows what is in store for today?

[Smiddywesson]

Good point.  It was also helped along with a boat load of manipulation.

Another point that should be made is not that manipulation didn't exist in 1929 or 1987, but that manipulation is rife today because they don't have any other option.  People didn't understand what was going on a well as they do today because we have drawn out what is going on for three years.  Banks and the government are working in lock step, something that wsn't quite so chummy in the past.  Finally, there are a lot more methods for intervening today than in the past.  The derivatives markets dwarf the underlying markets.

[Alea Iactaest]

An interesting view of the GS press release by Scott Grannis here: http://scottgrannis.blogspot.com/2011/08/real-meaning-of-todays-fomc.html.

Money quote:

By promising to keep short-term rates near zero for at least the next two years, the Fed has driven a stake through the heart of money demand. Why hold on to money if it is going to pay you almost nothing for the next two years? Why not borrow all you can (institutional investors can borrow money at close to the funds rate) and buy anything that promises to pay at least a positive yield? The 25 bps collapse in the 10-yr Treasury yield in the hour following the FOMC announcement was the market's way of understanding this. Two years of almost-zero borrowing costs means that you can "sell the curve" ... with impunity.

[Withdrawn Sanction]

Interesting analysis.

By promising to keep short-term rates near zero for at least the next two years, the Fed has driven a stake through the heart of money demand. Why hold on to money if it is going to pay you almost nothing for the next two years?

But how does this person explain the preceding 3 years where essentially the same conditions held (near-zero ST rates), and yet people clung to cash like a drowning man clings to a life ring?  One answer is that velocity (i.e., the willingness to spend over which the Fed has no control and only weak influence) has fallen off a cliff.

People are unwilling to extend themselves--take your pick: either because bankers are unwilling to lend (the small business story), and/or b/c borrowers are unable or unwilling to borrow (the bankers' story).

Until and unless the credit channel begins flowing again, spending and velocity will remain muted.  Moreover, the credit channel will not flow meaningfully again until the system is purged of its bad debts--either through write-offs or through a slow and painful process of attrition. (And transferring them to the sovereign wont work either; it will only accelerate the downward spiral.)

[SwingForce]

Did we ever have a Fed willing to buy stocks because the yields are double the 10 yr. T-note? 

Did we eve have a Fed willing to buy BANK stocks?  S&P hit the 1100 BTFD Trigger, -20 pts lower than Monday, yet XLF, BKX, FAS, UYG, JPM held Monday's lows +/- 2 cents, that's amazing.

[max2205]

We went below the 600 week EMA before we bounced (on the overnight session). Should'a been a clue to those who looked at it

[Gold Dog]

First and STILL short equities!!

Dog