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The market rose on Friday, and started when Europe opened and continued until an hour after our market opened. The reason given was the good employment report. That reason is obviously a deception, as we lost hundreds of thousands of jobs. So what could it be?
My contention is the Fed started to add to reserves into the banking system Thursday/Friday (Repos). The last time this happened (Dec 2008) the miners and metals bottomed and then two months later the market rose.
So the market reacted positively to this, gold and miners showed strength, and as these repos continue, you will see a move to hard asset stocks and commodities, a move out of bonds, and then it will pressure non commodity assets as margin pressure will crush earnings. But first we will make new highs in equities.
The Fed has no choice but to add reserves to the system or risk sovereign and banking collapses. Reserves have been falling for a year, and the only reason the market is flat and not down is the volatility crush and short squeezes that forces risk on. Both are done, volatility at lows and short interest down considerably. Jawboning promises of liquidity is done, and we are at peak earnings and margins, so reserve building is the next step. Plus they must give the banks more cash to leverage up to buy gov't debt and to support the market price and their profitability.
Good Sunday afternoon Slope. First off, with all due respect to my good friend BDI, when I say "Boom", I am anticipating an explosive move to the downside. As you can probably gather from that statement, my flirtation with the bullish side of the market over the past 6 weeks has come to an end. The great Bearish Rev has returned! Let's take a look as to why.
To start with, let's look at our old friend EWP vs SPX. Divergences in this comparison chart have served well over the past couple years to indicate short and medium term turning points in SPX. As you can see in the chart below, EWP is currently showing a negative divergence. In my opinion, any further upside in the markets next week, are an opportunity to sell longs, and build short positions.
Please take a moment to carefully review the mind jarring tables above. Perhaps the staggering number of casualties inflicted in what was by far the most brutal military conflict in modern history, will make you better appreciate why I may seem a bit defensive when it comes to all the white flag waving jokes about the French on SOH.
There are a plethora of so-called “experts” running to and fro commenting on why Facebook® the former darling of the IPO (Initial Public Offering) investment world dashed all their hopes and dreams. Most are missing the point in my view because it was pretty clear to anyone whom looked at their developing love affair without the rose-colored glasses. All one needed to do was put down the rose spectacles and view the model through the prism of business for a clear view. The business model showed cracks right from the beginning.
Let me state right here that I have great respect for Mr. Zuckerberg and what he’s accomplished, and is still trying to. However as of today the IPO and business model that was used to bludgeon anyone critical of its claims is currently trading not only lower, but near half its original price. For those expecting to be rich by year-end they now might be facing losses of nearly half their money, and quite possibly more. But what’s the real reason why? Here’s how I see it…