Courtesy of Phoenix Capital Research
Over the last two weeks, I’ve called for a reversal in stocks. It seems I’ve completely underestimated the ability of the Federal Reserve and its Primary Dealers to ramp the market higher on next to no volume.
Indeed, stocks have soared in the last six weeks, posting their best September performance in 71 years and rising roughly 12% from trough to peak. This surpasses even July’s monster rally of 11.1% from trough to peak, stands as the most aggressive rally since the April 2010 top.
However, beneath the surface of this massive move, the stock market shows the clear imprint of intervention and manipulation. Indeed, we have seen no fewer than six gaps up during this rally. Gaps up are NOT a sign of a healthy robust market; they are sign of “behind the scenes” manipulation taking place in the futures night session when market volume is low:
Aside from the gaps up, we also have the Federal Reserve’s Permanent Open Market Operations (POMO), also know as its “QE lite” program. Rather than dress this nonsense up in clever terminology, let’s just say it consists of the Fed dishing billions of US Dollars to Wall Street banks, which subsequently ramp the stock market higher. The end result is that stocks have exploded higher while the US Dollar has collapsed:
Seeing all of this, my previous two weekly forecasts have called for a reversal in stocks. Suffice to say I’ve been wrong both weeks. The Fed has clearly gone “all in” on its “maintain stock levels at whatever cost” policy. And while stocks have broken their trend line, they continue to rally in stair step fashion:
As I write this on Sunday evening, the S&P 500 futures are rallying, signaling that we’ve likely got more of this madness coming this week. Indeed, until the Euro/US Dollar and Australian Dollar/ US Dollar pairs (which have become the two carry trades of choice for the markets) break their upward trading channels, the madness will likely continue:
The Euro/ US Dollar pair:
The Australian Dollar/ US Dollar (pair):
With that in mind, keep your eyes on both of these pairs for signs of when the inevitable collapse will begin for stocks. In the meantime, this week we’re likely to see a continuation of the same action we’ve seen in the last two weeks: stocks gradually rallying higher in stair step fashion with “the invisible hand” stepping in to prop the market up anytime we come close to a breakdown. The only thing that will change this is if the brutal economic realities choose to assert themselves globally. The European banking crisis continues to spread while millions of European citizens have taken to the streets in protest of the various austerity measures being imposed.
On this side of the pond, some 43 million Americans (13% of the total population) are officially living in poverty. The jobs numbers are a joke and all talk of recovery has been manufactured via accounting gimmicks or full-scale fraud. I’m detailing more of this in tomorrow’s article, but for the sake of this week’s forecast, I’m simply trying to point out that the US economy is on the brink of full-scale disaster and at some point (possibly this week) this reality could hit the stock market.
In the meantime, having cleared 1,150 with conviction, the May high (1173) and then 1200 are the next lines of resistance on the S&P 500. Support is at 1,150, 1,140, and 1,120.
Good Investing!
Graham Summers
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