Weekend Report (by BBFinance)

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We all can see the writing on the wall but can we read it?
The Chicago PMI, another cooked up data by the Govt. went negative, despite all
efforts by the powers that be, for the 1st time since 2009. The
following chart is from Reuters:

Chicago-pmi


Now we know the reason for the “Hail Mary pass”. Bernanke
knows something which we don’t. But the virus has developed resistance for the
medicine and now the medicine is causing more sickness. Borrowed money, money
printed out of thin air cannot create prosperity. I wish you would see the
following presentation in full:

 

So do we go short here?

Heck no! Not till after election. Let me quote from Stock
Trader’s Almanac:

Psychological: Intoxicated.
Despite weak fundamental data, Europe’s debt crisis, escalating geopolitical
tensions, the pending fiscal cliff, etc. the market continues to drift higher
with only an occasional pause. Central banks, the world-round, have either
pledged to or have already begun to refill the punch bowl. At some point it
time it may run dry again, but for now the market seems to care little about
anything else. 

Fundamental: Weak. Global
growth is slowing and it was confirmed by warnings from Caterpillar and FedEx.
Many Q3 corporate earnings forecasts are actually expecting year-over-year
declines. Unemployment is still above 8% and the recent decline in the headline
rate was actually due to the labor force shrinking, not because of new hirings.
Today’s sharply lower than expected final Q2 GDP showing just 1.3% annual
growth and the abysmal durable goods orders report only further underscores why
the Fed took action. 

Technical: Consolidating. After
breaking out to new recovery highs, the market yielded to typical end-of-September
weakness while digesting the Fed’s latest action. Provided the geopolitical
environment and economic data do not deteriorate in any meaningful manner in
coming weeks, the market is likely to resume its drift higher, at least until
after the election when Congress returns to session. 

My short term cycles are down for some more time and I think
we will see lots of chop. I was hoping that PM sector will sell off and offer a
good entry point but so far it has not obliged. SPX 50DMA is around 1410 and
unless it is broken convincingly, there is no reason to go short given that the
last push up is about due. ( Does not apply to day traders). I see that the
sentiments have turned bearish in the last two weeks and everyone is expecting
the top or some sell off.

Sentiment
When everyone agrees it is time to be contrarian. The market
inflicts maximum pain to maximum number of people and I think it is laying a
bear trap. In the coming week, we might see little more selling just to keep the
bears excited and entice them with more shorts and then zoom up. Where and how
far it will go up, I do not have any idea. However, it can test the all time
high of 1526 before the fat lady sing again.

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