Kiss the New Stocks Bull Market Theory Good-bye
Stock-Markets / Stocks Bear Market Oct 08, 2009 - 10:35 AM GMTBy: Graham_Summers
I’ve also been tracking the S&P 500 in relation to its 88-weekly moving average: THE definitive metric for what establishes a bull vs. bear market. As I said in the last two issues, if the S&P 500 breaks ABOVE the 88-weekly moving average and stays there, then YES, we’re in a new bull market. However, if it’s turned away and falls below the 88-weekly moving average… THEN LOOK OUT BELOW.
As you can see, the S&P 500 was rejected at the 88-weekly moving average. If you’re having trouble seeing this, the below chart shows the recent action more clearly.
It is now literally “do or die” time for the stock market. Either stocks consolidate here and then push above the 88-weekly moving average OR they “kiss” the line one more time and then roll over and collapse.
As I’ve stated time and again, I fully expect the collapse to occur this fall. As the above charts show, it will be sooner rather than later. However, the bearish rising wedge patterns starting in both March 2009 and July 2009 both leave room for a little more potential upside. This is why you should keep all of your current positions small (I’ve recommended establishing only 10% of your full-intended short position, e.g. $100 out of an intended $1,000 position).
This is also why it’s not yet time to go “all in” shorting this market. Time and again, the market has been manipulated higher on weaker and weaker volume courtesy of the Fed’s loose monetary policy. It’s never a good idea to bet heavily against the Fed. And our current Fed Chairman, Ben Bernanke, is a bubble-blower extraordinaire (seriously, he’s managed to create yet another mini-bubble in stocks during the worst financial crisis in 80+ years). So you don’t want to go stepping out in front of this bubble-making machine with much capital.
However, blowing bubbles is not an economic policy. It is a road to ruin. And we are now headed there at an accelerated pace.
To date, the US government (I include the Federal Reserve) has spent some $11 trillion+ trying to re-inflate the US economy and stock market, They have failed miserably. Consider:
- 27 states in the US now have unemployment rates above 8.5%
- 60% of Americans don’t have enough money saved to retire
- 2,690 employers performed mass layoffs (firing of 50 or more employees at once) in August (up from 533 in July)
- REAL incomes continue to collapse: at an annualized rate of 5% for the three weeks of August 28-September 23
- REAL weekly unemployment claims have topped 500,000 since January
- US bank loans have been falling at an annual pace of almost 14% since the early summer
- Shipments in capital goods fell 1.9% in August, similarly, rail shipments which slowed their rate of decline the last few months, have begun to accelerate downward again
- Industrial production has dropped 11%
- Fannie Mae’s August data shows a surge in delinquencies from $4.2 billion to $70 billion.
And those are merely the data points I can quickly recall from recent releases. Elsewhere in the world (remember the Stimulus efforts were global) things aren’t any better. The Telegraph recently noted that, “China's exports were down 23pc in August; Japan's were down 36pc; industrial production has dropped by 23pc in Japan, 18pc in Italy, 17pc in Germany, 13pc in France and Russia…”
When you consider just how little “bang for your buck” we got out of the unbelievable amount of Stimulus spent… you have to wonder what the heck the point of it was. Remember, the bailouts were sold to us as a massive effort to help Joe America keep his job, his house, and his ability to spend.
How’s that working out?
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Good Investing!
Graham Summers
Graham Summers: Graham is Senior Market Strategist at OmniSans Research. He is co-editor of Gain, Pains, and Capital, OmniSans Research’s FREE daily e-letter covering the equity, commodity, currency, and real estate markets.
Graham also writes Private Wealth Advisory, a monthly investment advisory focusing on the most lucrative investment opportunities the financial markets have to offer. Graham understands the big picture from both a macro-economic and capital in/outflow perspective. He translates his understanding into finding trends and undervalued investment opportunities months before the markets catch on: the Private Wealth Advisory portfolio has outperformed the S&P 500 three of the last five years, including a 7% return in 2008 vs. a 37% loss for the S&P 500.
Previously, Graham worked as a Senior Financial Analyst covering global markets for several investment firms in the Mid-Atlantic region. He’s lived and performed research in Europe, Asia, the Middle East, and the United States.
© 2009 Copyright Graham Summers - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.
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