I read a lot of market and economic commentary from various sites, and the smart ones all seem to agree on a few general things:
(1) All the trillions being dumped into the system will probably eventually result in Something bad happening; what that "something" is remains unknown, although a worldwide currency crisis seems to be a favored choice;
(2) The jobs market remains dead, except for lame-o service jobs, and without the artificial manipulations of the Fed, we'd be looking at a 12% unemployment rate right now;
(3) The stock "market" is a stock market in name only; at this point, it's a bizarre confabulation of the Fed, the big banks, POMO, and HFT computers.
(4) There will come an event that will – probably very quickly – bring forth the unintended consequences of all this unprecedented action, and the Something will be reviled instead of embraced.
But all the important stuff – like when the crisis will happen and what form it will take – is utterly unknown. This makes trying to make money in a market like this both confounding and difficult.
What I've noticed, as a technical analyst, is that the only time this year the market behaved in a sensible fashion is during the few months that Goldman Sachs was under the gun of the government. The moment GS bought themselves out of their troubles, things got weird again, and they've stayed weird ever since.
What scares me is that things were likewise weird in 1999, and they just kept getting weirder. The "shock event" that finally woke people up was Microsoft's earnings warning early in April 2000.
What brought all this to mind for me was my examination of charts last night. There are many, many charts that are simply acting in ways that seem abnormal. It's as if you have spend the past twenty years watching people run headlong into a brick wall. Every time they reach the wall, they smack against it and fall to the ground. And this time, as you're watching people rush toward that wall…..they pass through it and emerge on the other side.
That isn't what you are accustomed to seeing; it doesn't make sense; and yet, those are the facts before your very eyes.
I still am basing my own trading on individual stock charts. I thank my lucky stars that I stopped trading /ES, Forex, and – with only a single exception this entire year – options. That kind of leverage and volatility, particularly with a plunging VIX in the background, smells of disaster.
I again took a close look at my 1937-1942 analog this morning, and I remain convinced it is firmly intact. If there's going to be a drop this month – – and I think there is – – it isn't going to be anything dramatic, if the analog holds. I don't think we'll get anywhere close to the lows of even August, and I certainly don't think we're going to have a hard fall, unless some leading companies start announcing some surprising earnings.
I think a dip this month would line up nicely with:
+ A (very temporary) strengthening of the US dollar
+ A (again, temporary) diminishment in precious metals prices
Were we to get such a move, I would be strongly inclined to exit most of my short positions and, at the right price, get heavily long in the area of precious metals and specific equities (I am presently long 10 positions). Bernanke seems hell-bent on wrecking the dollar, and I would like to align myself with the Fed's insanity.
Here's what concerns me even more (I never said this essay would be heartening): if we do get a dip, and then a subsequent surge in equities, metals, and the Euro – – the analog predicts that the markets would go into an Ungodly Boring state for months until the Shock Event takes place. The shock event in 1940 was Germany's aggression; the shock event in 2011 would be……Something. Again, nobody knows what it is and nobody knows when it will happen.
But it seems that the Something is out there, and until then, the market is going to remain a pretty big pain in the rear.
One final thought – – one of the many Something Doesn't Look Right Here data points before me is all the hoo-haw about suspending foreclosures. I don't have a sympathetic bone in my body for banks, but this nationwide suspension of foreclosures – – based on technical errors in execution by the banks – – seems ridiculous to me. My heart doesn't bleed for people who:
(a) bought a house way beyond their means;
(b) signed a document promising to pay a certain amount of money each month;
(c) blew off their obligations to pay;
(d) are hanging out in the aforementioned house, rent-free, payment-free, and scruples-free
I've said it before, and I'll say it again – – the biggest suckers in the entire country are hard-working people who pay all their bills on time, keep their commitments, and wouldn't dream of not making payments simply because they could get away with it.
People like – say – me.
Because I really do wonder how stupid I can possibly be to be sending in my payment every month when millions have apparently been given free license to steal houses – – or at least live in them for free for God knows how long. People who are honest and do as they pledge appear to be the Fools of the Nation.
Hi. My name is Tim Knight.
So there we have it. Things are really wrong right now, and they'll continue to be wrong for the foreseeable future. I don't like it, and I hope it ends sooner than I fear.
