How far will they go?

From Doug Noland @ prudent bear .com CBR
http://www.prudentbear.com/2014/10/more-wackoism.html#.VEuUFWK9KSM

"Seems an opportune time to revisit Fed governor Bernanke’s speech from almost 12 years ago, “Deflation: Making Sure ‘It’ Doesn't Happen Here.” Since Bernanke’s 2002 “U.S. government has a technology, called a printing press” dissertation, the Fed’s balance sheet has inflated from $800 billion to $4.5 TN. Treasury debt has inflated from about $4.5 TN to $12.6 TN. Total system marketable debt has jumped from about $30 TN to almost $60 TN. On the rate side, despite booming mortgage Credit growth, the Fed waited until June 2004 to nudge rates up 25 bps (to 1.25%). Rates didn’t make it to 4% until late 2005, just as mortgage Credit was wrapping up its fourth consecutive year of double-digit expansion. 

Bernanke: “But the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation. Of course, the U.S. government is not going to print money and distribute it willy-nilly (although as we will see later, there are practical policies that approximate this behavior). Normally, money is injected into the economy through asset purchases by the Federal Reserve. To stimulate aggregate spending when short-term interest rates have reached zero, the Fed must expand the scale of its asset purchases or, possibly, expand the menu of assets that it buys… Thus, as I have stressed already, prevention of deflation remains preferable to having to cure it. If we do fall into deflation, however, we can take comfort that the logic of the printing press example must assert itself, and sufficient injections of money will ultimately always reverse a deflation.”

Rally Continues

Futures are positive this morning, the snap back rally has only taken a few days to recover most of its losses from the decline. This type of fierce rally is more reminiscent of a Bear Market rally.

However, my index has reversed its long term signal, so it's either everyone in the pool again, or wait.
Long term interest rates on savings and safe money markets make it near impossible to get a return from sideline money. That's the full intent of the Federal,Reserve strategy, to get everyone in the pool.

D

Does Bull still have a pulse?

My trusted indicator from an index point signal has gathered itself and is above the Bear line. This is a SLOW moving indicator , and as monthly chart needs time to settle itself.
With the recent rally, the initial RED signal with a breach of 90.00 was reversed. I do still believe we are in the latter phases of building THE TOP, if new highs occur, I do not expect them to greatly exceed what is in place now.

A big miss from IBM today didn't paint a great picture for corporate spending, IBM is a better economic indicator than Aaple. IPAD sales are disappointing , but iPhone sales were OFF THE HOOK!
Consumer spending is 70% of the US economy, with wages stagnant that also does not bode well for the economy.
Interest rates are still being held at 0% by the Federal Reserve, even after 5 years of recovery they cannot even say when they will begin to rise.

Is this recent uptick in volatility just a short term phenom? Did we get enough correction to resume bull march upward to infinity?

We are quickly correcting oversold condition, and approaching the 200 day moving average. Let's see if it continues business as usual and what me worry.

D

ECONOMY IS WEAKER THAN IT APPEARS

Bloomberg

Underemployment worse than U.S. data suggest

Federal Reserve policy makers are missing a key element as they assess the health of the labor market: data that includes whether those who are employed are overqualified for their job or would like to work more hours.

• Survey: Pay raises rarer despite strong US hiring

In  the midst of weakening global backdrop, investors STAY complacent and feel the Federal Reserve will continue to inflate the stock market, even after 5 years of doing so.

What may be lost on many, is this has been great for the top 1%, who own lost of stock and who also may get stock options, which they convert and sell to you and then pay 15% tax on all the dividends.

A GULF is being created between the haves and the nots. How do you keep a credit bubble going? By expanding the bubble by ever greater quantities, and that is becoming harder to levitate.

I don't see people taking this seriously....to perhaps their own detriment at some point.

D

Are new highs in the S&P 500 still possible?

I consider my indicator pretty reliable, but we still have the let the month play out , even as it has dipped into Bear territory, it is possible it doesn't end up there but back above the danger line when all is said and done.

It certainly looks like some kind of bottom is in place, and especially traders see the opportunity to catch Bears on the wrong side of trade and squeeze more pain. Friday was options expiration and always the MOST pain that can be afflicted, so be it will be. That coincided nicely with the recent decline into oversold territory.

So now we have the support that was broken and the 200 moving average above, near 1900 and that would be good area to be watching to see if it holds or if when broken the Bears freak and cover into a melt up rally.

Change is in the wind, a TOP is here or being formed with weakness underneath the overall market not seen by many. Could be buying opportunity here, could last into Xmas rally.
October did a good job living up to its reputation as the worst month of of the year.

With drop In 10 year yields, refi's perked up again. And don't forget the extra jingle lower gas prices have put into consumers pockets.
All that said, some retailers are warning of weaker Holiday spending, for some reason...

D

Rally time?

2 stabs at the lower price range today, good chance short term the selling could be washed out.
On any rally we will pay close attention to how far it can go and where we broke strong support, should now be resistance.

If price can rise above certain levels I am watching I would have to reconsider my Bear Call. Always be open to anything, but I do have my signal. But in TA what has worked before is NO guarantee it will work again. But I a pretty confident a change has occurred.

D

Dennis Gartman gets Defensive

From cnbc.com
"After three straight days of declines in the major stock indices, it's time to rethink long positions, Dennis Gartman said Monday.

"You should be less long than you have been, and I think you should be demonstrably less long than you have been," the editor and publisher of The Gartman Letter said on CNBC's "Fast Money."

After a triple digit gain into mid day, going into the last half hour there has been NO conviction among buyers and they take for the exits once again, even with strong oversold condition.

Bulls have not shown resilience in the face of easy money the last 5 years, FED got your back, f the savers rally.

Second Chance Highs In Place?

http://solarcycles.net/2014/10/12/pre-monday-update/ must read with analogues from different markets.
D

RUBBER CHICKEN HAS MET THE ROAD. IS A BEAR MARKET UPON US?

Many of my long time blog readers understand my point of view, and it's more of a long term view of things. I'm not your stock picker, I've always felt my goal was to educate, enlighten and open the minds of investors so they would want to learn more and maybe be more prepared to forge their own road to financial freedom. Most don't want to spend the time it takes to gain the knowledge to assist themselves in making financial decisions. And in most cases an individuals investment decisions are made for them. Financial advisors are heard followers, they are never prepared for Bear markets.

One of my most trusted long term indicators is flashing RED, warning a Bear MARKET may be upon us. We have been through some corrections before, but is it different this time?  And how can anyone know? Nothing is 100% for sure, but here is what I see and what concerns me. I know I have not been posting much lately, but 3 years ago I started my own business, and put all my efforts in supporting my family and trying to grow my business. I will not abandon this blog however, and will try to post at least once a week going forward.

Market was overdue for a correction, but the small caps seen through the RUT,  have fallen For over a month. And lately the Transports have been leading the charge, you never like to see that.

Bull markets don't last forever , this one is 5 plus years old. Unless this is a Secular trend , it is long in the tooth.

Gold has fallen into a Bear mkt, and is flashing worries about Deflation, I believe this is more than just a strong dollar worry for gold.

Bond market is nearing its low in yields , showing a strong move for defense and preservation .

The FED minutes came out and sounded like easy days will continue for ever, so the market romped for triple digits. But the  very next day the market gave it back, so mere words seem to also have diminishing returns.

Our markets and economy are reliant on ever larger expanding credit growth, and we are not getting enough. At some point, this game will be over, the FED and other Central Banks have fought hard against historical trends and the inevitable .

It feels better, it may be better,,but the party has been ongoing on laughing has. When the music stops, not many will be laughing.