Economy is going down the drain, FED feels the need for more stimulus, but the market rallies. Does that sound irrational? Yes. People do this all the time. Look how throughout the 2007-2009 crash FED came up with more and more stimulus and how the market declined after brief rallies:
http://www.kondratieffwavecycle.com/stock-market/is-the-plunge-protection-team-manipulating-stocks/
Now deficit is more than a trillion. Unemployment is at record high levels. We are merely borrowing and spending to sustain our consumer economy illusion. Yet the traders are optimistic about the economy. Everybody bought the stocks, 93% of traders are bullish. They are all waiting for stocks to go ever higher so that they can sell to the greater fool. Just wait it out folks, one of these days those bulls will end up being the greater fool who bought at the top. Everybody knows FED will save the economy, can they all be right?
Stock market technical indicators once again are ringing the bells. Weekly and daily accumulation distribution index is showing big money is selling the rally, not buying it. Other technical indicators that we should mention are:
1. Mutual Funds Cash Holdings
2. Annual Dividend Yield and P/E Ratio
3. Daily Sentiment Index
4. American Association of Individual Investors (AAII) Poll
5. Bull-Bear Spread
6. Put/Call Ratios and
7. VIX
8. Intraday Trading Index (TRIN)
9.-13. Momentum Indicators: TICK, Closing Premium, Upward Gaps, Open TRIN, Volume
Excessive optimisim is visible accross the board. Democrats are about to loose (which the traders already know), Bernanke keeps promising Quantiative Easing 2 (QE2) which the traders also know. US dollar is wiped out and according to the press it is dead. Never mind, in early summer it was the Euro that was declared dead. Press was calling 1 to 1 parity for Euro/USD and some were calling European Union would break apart. Now, few months later we see the exactly opposite sentiment in currencies, gold and silver. People are bullish on everything except the US dollar.
They say you need to be in stocks or inflation will wipe out your money. Burned investors jumped into junk bonds and are about to get burned even worse on that side. Gold is supposed to go to 10,000 USD. Silver, commodities is supposed to skyrocket as well.
But there is one thing wrong in this picture. Stocks, bonds, oil, gold, everything is going up, but unemployment is still high. Real Estate prices, despite record stimulus and gigantic Fannie Mae, Freddie Mac losses, are in a decline. Salaries are not going up. GDP is up, but debt is up exponentially more.
We are spending borrowed money and propping up prices of speculative assets such as stocks, bonds, gold, silver and shorting the dollar. But the day of reckoning is near. US dollar will soon bottom. US dollar is the place to be. Debt is the problem and we have more of it now. Bernanke has alot more printing to do. Meanwhile, DOW priced in Gold is crashing, and nominal prices will soon follow.
