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Bull Retest Or Bear Failure?
Submitted by Lance Roberts via STA Wealth Management,
Several weeks ago I suggested that we had seen the "Mark of the Bear" stating:
"The Bulls have remained firmly in charge of the markets as the reach for returns exceeded the grasp of the underlying risk. It now seems that has changed. For the first time since 2007, as we see initial markings of a potential bear market cycle."
I followed up that analysis by suggesting the markets would likely experience a "sucker's rally" which is extremely normal following declines in the market. These short-term reflexive rallies generally suck inexperienced investors into the market to "buy the dip," while more experienced investors use the rally to protect capital against further declines. As I stated then:
"One thing is for certain, if the market does muster a rally strong enough in the week's ahead to retest the previous bullish trend moving average, it could very well be a 'sucker's rally.' Any failure will likely mark the beginning of a new bear market cycle. And, just as before, there will be no warnings, no announcements by the media, or acknowledgment by Wall Street analysts. However, the consequences will likely be just as severe."
I began addressing at the end of August that the market collapse had gotten extremely oversold. As such, that set up the probability for a reflex rally back to previous support levels.
The chart below is the orginal from the August 25th report mentioned above. It shows the oversold condition. The blue dashed line shows the potential short-term reflexive rally that would likely occur.
Here is that same chart updated through yesterday's close.
As you will notice, the reflexive rally, and subsequent failure, have tracked the original predictions very closely up to the point.
With the market once again very oversold on a short-term basis, it is likely that the markets could manage a weak rally attempt over the next few days. The good news is that such an attempt will provide individuals another opportunity to reduce portfolio risk accordingly.
The Test Of The Bull
The bad news is that the rally will likely fail due to the same factors I discussed last Tuesday:
"The failure at overhead resistance, combined with a continued weak technical backdrop of momentum and relative strength, suggests that a retest of lows in the weeks ahead is a likely probability.
As shown in the chart below, the deviation from the long-term bullish trend line was greater than at the previous two bull market peaks. In both previous cases, a break of the market below the shorter-term moving average (red dashed line) subsequently led to a least a test of the longer-term bullish trend line. However, a "test" would assume that the current cyclical bull market is still intact."
"If the market fails to hold support at the long-term bullish trend, currently at 1860ish, such a failure will dictate a fully completed transition into a more destructive cyclical bear market."
Is QE 4 Coming?
While the mainstream analysis remains quite bullish on the underpinnings of the market, the ongoing deterioration of market internals and fundamentals suggests something more pervasive. The chart below shows the previous post-financial crisis corrections following the end of Central Bank interventions.
As you will note, each correction was contained within a Fibonacci correction band of either 38.2% or 61.8%. It was at these correction points that the Federal Reserve responded with some form of monetary intervention or support.
With the markets currently at an initial 38.2% correction from the low that marked the beginning of QE 3, the question is whether the Federal Reserve will once again intervene with another monetary liquidity program? This was a point recently made by Bridgewater's Ray Dalio (excerpt via ZeroHedge.)
"That's where we find ourselves now—i.e., interest rates around the world are at or near 0%, spreads are relatively narrow (because asset prices have been pushed up) and debt levels are high. As a result, the ability of central banks to ease is limited, at a time when the risks are more on the downside than the upside and most people have a dangerous long bias. Said differently, the risks of the world being at or near the end of its long-term debt cycle are significant.
While, in our opinion, the Fed has over-emphasized the importance of the "cyclical" (i.e., the short-term debt/business cycle) and underweighted the importance of the "secular" (i.e., the long-term debt/supercycle), they will react to what happens. Our risk is that they could be so committed to their highly advertised tightening path that it will be difficult for them to change to a significantly easier path if that should be required.
We believe the next big Fed move will be to ease (Via QE) rather than to tighten."
As I have addressed so many times in the past, the Fed is now becoming well aware of the dangers of being caught in a "liquidity trap." As Dalio correctly points out, the end of the debt cycle has significant long-term implications to both the global economy that is overly indebted in dollars and holding large leveraged long positions.
The long-term implications of a liquidity trap, and the end of a debt cycle, are significant. While many believe that the "financial crisis" was a "one-off" event that is now long past us, the reality may be it was just the beginning. While Central Banks globally have intervened to rescue the financial system by injecting trillions into it, they failed to use that support to restructure the debt problem that lay beneath. Now, more than six years later, the global economy is once again potentially on the brink of a recession and there have been few improvements in the structural underpinnings.
The question is what will they do next time?
For investors, the markets have been sending a fairly clear warning signal. Market topping processes take time to develop fully and, unfortunately, are only fully recognized in hindsight. The problem in waiting for "recognition" is that the destruction of capital is already far larger than previously expected. This leads to a series of "psychological" responses that exacerbate the problem such as "hoping to get back to even."
The last point is critically important. In the world of investing, "hope" has never been an investment strategy that one could profit by. It likely won't be successful this time either.
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I'd go bear, but be fairly conservative. Wall St. is going to be fighting it for quite awhile yet, hoping for another magical QE to save them.....
What a fucking colossal waste of time. (And money)
I beg to differ. You can sell hope to 'investors' and make a real killing.
Steve Forbes once said, "You make more money selling advice than following it."
did the technicals see oil at $45, or cad as the only, temporary, way out?
Communists & Their Fascist Science Experiments
As the man said, ‘you are innocent until you run out of money.’ A court of law is a rigged debate, and as a defendant, you stand accused of not being a communist, of belonging to the minority, with rights assigned accordingly, hence ‘give unto Caesar that which is Caesar’s.
The evidence presented is always your reaction to the crimes of communism, presented as a declaration of unsubstantiated evidence at trial of presumed fact, communism, before your ‘peers’ in society, communists, hence keep your own counsel. And all those judicial layers ensure that your voice is completely expunged.
The point is to replace your individual identity with the opinion of communism. The constitution, communist education from birth, is designed to place you in denial, before you even know that you are going to be tried, for refusing to accept the gang credit differential of negative interest rates.
Your best option is to keep your distance from its jurisdiction. If you find yourself in jurisdiction, the better option is to pay the most corrupt lawyer in that jurisdiction $5k, for the judge, to determine the facts in your favor. Beyond that, all you can prove is that the prosecution is rigged, which gains you nothing, but lost time. The public defender is there only to ensure that you have no voice in the process.
The majority always gives itself the right to take your children for non-compliance, so choose your spouse wisely, your compliment. My wife can be run over by a psychological train 100 times and spring up planting flowers every time. By the time Grace gets done with the communists, their brains are going to be burnt scrambled eggs.
The hospital, like any other prison, is looking for any excuse to put you and your children on life support as extortion, because the principal on those bonds will never be repaid and the salaries can only be paid by reducing the standard of living for everyone else. Accordingly, the communists assume that your DNA is a closed loop like theirs, that it cannot be altered in real time, that you are simply another cog in the communist wheel, at their discretion.
When I was 7, I could see the stupidity of relative interest rate differentials. If Trump gets OPM at 0%, through the miracle of the mortgage interest deduction Ponzi, and you get OPM at 20%, Trump has the advantage of a negative interest rate, while communists like Soros gain from the outright elimination of anonymous money, until they blow up the economy, by eliminating the private sector providing it.
Who cares what the tax rate is once the horse is out of the barn, and why do the critters get to print each other ‘gifts’ with the charitable contribution deduction? You can have all the politicians and all the participants in the actuarial Ponzi, and I’ll still bet on my family, such as it is, because all the communists have is advertising, backed by false promises as choices.
Trump is right about Rubio, who pits nation/state middle class against middle class, strangling each other for nothing more than real estate inflation, driven by foolish migrants running around in a circle. If the critters take 50% on excuse of Family Law, and another 30% with taxation before that deduction, leaving you 20%, you have nothing to spend and the economy contracts, surprise. The communists destroy their own economy whether you comply or not.
From the perspective of the communists, you are nothing more than a science experiment, and natural selection is the answer, which they try and fail to prove wrong every time, with derivative statistics measuring only the counterweight, themselves. Because communism has existed for thousands of years, it’s the answer. Brilliant.
The only difference between Sweden and Saudi Arabia is how fast they replace a non-recurring resource with recurring bankrupt behavior, and as bad as Saudi Arabia is, Sweden is losing. In any case, their money is worthless. I was trained by old school union mobsters from a pup, to enforce contracts, and the new school communists bet that they could control the entire global population with credit, backed by the US dollar as a reserve currency.
How you bet is a choice.
The primary trend, as appraised by the Dow theory, turned bearish on August 20th, as explainded here:
http://www.dowtheoryinvestment.com/2015/08/dow-theory-update-for-august-...
The odds favor more declining prices, and hence it seems likely that the August lows will be retested again
It always boggles me when people see a program like QE as a positive, the conditions that necessitate it's inactment are deplorable, yet where and how do they exit? Raising rates will pull funds from equities, yet not raising rates is a picture into corporate health, which needed life support to begin with? Stock buybacks, layoffs and other 3 card Monty accounting strategies can only take you so far before decreasing sales and anemic GDP growth (if at all) bite corporations in the arse!