Boy, do I love it when a prediction starts to come true. Remember, I’ve been talking about the possibility of a melt-up going into options expiration next week as the nears are in about perfect field position to do a record-book ‘running of the shorts’? (Maybe you don’t get Peoplenomics, but it was there in a recent ChartPack…) The Fed meeting yesterday was – also as predicted – a non-event. Except for this one little part of the FOMC statement:
“As previously announced, to provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve will purchase a total of up to $1.25 trillion of agency mortgage-backed securities and up to $200 billion of agency debt by the end of the year. In addition, the Federal Reserve is in the process of buying $300 billion of Treasury securities. “
They might have just as well put a sign out front that said “This Casino is rigged! Come on it – everyone’s a winner! Step right up!
And so, the price of gold is up over $950 again this morning, silver is back knocking on the door of $15 an ounce, and the futures are up like crazy. Why, at this rate, I may have to send in some dough to my brokerage outfit so I can go short as soon as the upside stampede gets ready to set new high water marks.
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Another thing to keep an eye on is how the dollar is doing. Especially against a background of headlines like “Dollar dips in Asia after upbeat Fed comments.“
If you talk to a Bull in this kind of a market (and you can get past the frothing around the the mouth) you’ll heard justifications like “Stocks are being priced like an apartment house would be priced in a period of inflation: The price is going up because the income and earnings potential of stocks is high and isn’t the USA the biggest market in the world?
Well, yes, the potential is high, but have youi looked at the forward Price/Earnings ratio of the Dow or the S&P lately? One analysis (up at Gluskin/Sheff) figures it’s in the area of 700. Who’s ever heard of a market PE of 700 without a disaster on the back end?
Still, trying to judge the extraordinary delusions of crowds has been a longtime favorite of market wonks since the South Sea Bubble.
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Market bounces are hard beasts to figure, although they do seem to have some logical turning points. For example, a 38.2% retracement or a 50% retracement in the ‘bounce’ is often observed, although in extremes, the bounce can be 80% or more.
Let’s pencil this out, shall we?
On a weekly closing high, the Dow finished October 1, 2007 at 14,066.
March 2 of this year, it closed the week at 6,627.
14,066 minus 6,627 is 7,439 points.
The way we get to the ‘bounce high’ targets is to multiply the 7,439 difference between the high and the low, then add it to the low. Here, I’ve run out from targets for you:
| % Retrace | Points | Target Dow |
| 0.382 | 2,841.70 | 9,468.70 |
| 0.5 | 3,719.50 | 10,346.50 |
| 0.666 | 4,954.37 | 11,581.37 |
| 0.75 | 5,579.25 | 12,206.25 |
| 0.8 | 5,951.20 | 12,578.20 |
Nothing would make me happier than to see a closing Dow this week of 9,468 or even 10,348 in a couple of weeks (week ending August 22???).
Unfortunately, from there, what would then follow a series of declines since the second leg down has favored tendencies. Since wave 3’s must be equal to wave 1 down, here are some percentages based on the possibilities above.
| Ultimate Dow Lows | |||||
| Decline % | From 9,468 | From 10,346 | From 11,581 | From 12206 | From 12,578 |
| 100.00% | 2,029.70 | 2,907.50 | 4,142.37 | 4,767.25 | 5,139.20 |
| 138.20% | -812.00 | 65.80 | 1,300.68 | 1,925.55 | 2,297.50 |
| 150.00% | -1,689.80 | -812.00 | 422.87 | 1,047.75 | 1,419.70 |
| 161.80% | -2,567.60 | -1,689.80 | -454.93 | 169.95 | 541.90 |
| 175.00% | -3,549.55 | -2,671.75 | -1,436.88 | -812.00 | -440.05 |
| 200.00% | -5,409.30 | -4,531.50 | -3,296.63 | -2,671.75 | -2,299.80 |
| 238.20% | -8,251.00 | -7,373.20 | -6,138.32 | -5,513.45 | -5,141.50 |
| 250.00% | -9,128.80 | -8,251.00 | -7,016.13 | -6,391.25 | -6,019.30 |
So you can see what Ben Bernanke and any other smart, right-thinking economist would be worried about, right? There are some possibilities in the cards which, ifs the market doesn’t do one hell of a rally, there is what would have to be eyed as a statistical possibility that the markets could melt to the point of unrecoverable.
What could the triggers be? One of the things that caused me to wake up in a sweat last night was “What would happen if people all of a sudden lost faith in electronic currencies? “ In such a scenario, there wouldn’t be enough paper money to go around. And that’s just for openers.
We might not need to go that far in our thinking, however, since there are plenty of headlines that lay ou8t ‘game-ender’ possibilities. Pandemic flu that kills large numbers of people, a devastating sequence of terrorist events on American soil – that kind of thing.
In fact, if one is solely preoccupied with the preservation of the nation, an argument that a false flag operation which would give the government power to shut financial markets down and re-formulate the economic system, might be one of the few available avenues available.
None of the outcomes is pretty. Which means the ONLY way to get out of this mess for a while would be for the market to go on to new all-time highs, which means a weekly close over 14,100 – and much higher than even that, if you want some measure of sureity, since you’d want it to be a new high in inflation-adjusted terms as well.
Before I get launched into a Peoplenomics-length discourse, I will just leave it at that: More than 80% of the markets is ‘flash-trading’ anyway – and some figure it’s over 90%. Since humans are out of the loop completely in high-frequency trading systems, we are in the financial equivalent of the Cold War where only the presence of humans was seen as the sure-fire way to avoid accidental war.
But now we have all the items in place for an ‘automated meltdown’ and how low it will go may depend on blind luck. If you read up on algorithmic trading, remember that the NYSE has stopped posting program trading volumes in steps.
The first step toward ‘blinding the public’ came a couple of years ago when the NYSE changed the rules to supposedly stop ‘double-counting’ of trades (buy side and sell side), but just a couple of weeks back even that was turned off. Reason? How are you going to keep people wandering haplessly into the Big Casino if you just put your life savings into something and trust machines to duke it out and hand you something back? Never gonna happen.
So here we are today: Rally on (for a while), staring into the dark abyss, and wondering “Gee, how come no one has audited the Fed since they stopped reporting M3…and you really mean my 401(k) money is just grist for some flash-trading programs?”
It’s all too much like the Clint Eastwood movie: “Are you feeling lucky, punk?”
Happy Numbering
All kinds of numbers out this morning. Import/Export prices, Retail sales, initial unemployment claims, and inventory levels of business.
Do I care? Nope. The biggy is tomorrow’s CPI data.
Meantime, the market could rally rabidly this morning because of the headlines that the “Euro-Area Economy Contracted 0.1% in Second Quarter“
Slice of roast Bear, anyone?
Reality: Home foreclosures up 7% in July from June.
Smart, very smart: “RBS uber-bear issues fresh alert on global stock markets.“
Missing Ship
All kinds of email today – much of it accompanied with subject lines like “Holy sh*t…you guys were right!!!” Referencing the predictive linguistics bit about the ship going missing and such.
Headlines like “Ship disappears in European waters ” are all over the net today.
My theory? Gone to a hidden base of some international cartel of bad guys and it’s time to call James Bond… not. Still, have to wonder if the Felix Leiter types aren’t on the blower to national technical means folks asking for a few keyholes to be retasked, if you follow…
Orbs Are Back
Oh-oh – this is serious woo-woo. Have a reader near Avery, Texas who has a ‘critter cam’ – you know, the kind that people put out when looking for deer that are coming by their feeders and such before hunting season? I’ll let the reader explain:
“Hi George
The following three pictures came from a critter cam facing west set up at my uncle’s watermelon patch in Avery TX. Something was getting his watermelons and he wanted to know if it was a coyote or raccoon. The cam took over 20 pictures starting around 2:30 am and lasted around 30 minutes give or take. All pictures do not have this clear of an image of the balls of light, however several have faded images of several balls.
If you look at the first image the ball of light is very clear in the upper left hand corner however there are several balls not so clear in the background.
I wanted you to look at them and tell me if you or your readers have ever experienced anything like this.
Oh, sure, that would be an ‘orb’. These are the little critters that you can find video of on the web doing things like cutting crop circles and what have you. (slow loading link, but search crop circles and orb and you’ll find other links).
A while back, one of our friends was going home from visiting us and saw some dancing in and out of the trees here in East Texas. No, it was not fire flies – we’ve all been around too long to mistake that – and no, not a swarm of fire flies, either.
If you happen to work for one of those National Technical Means outfits and want to drop me an email, I will see if I can talk the reader into sending along the full size files as an attachment, so they can be enhanced so we can see what we have going on here. No, it’s not the moon…moons don’t just around like that – see the house faintly in the background?
Four Months to Save Earth
Out of a UN group – four months left to secure the future of the planet.
Word out of Detroit: Senator Debbie Stabenow, is crediting with this dandy quote: “Global warming creates volatility. I feel it when I’m flying.“
We must be waaaay out in the outback. Down around the Palestine Municipal airport we call those summer thermals…you know, sun heats up asphalt and you get a little lift as you come over the numbers on the runway? Drop a little when you’re clear the runway on departure? But hey! Don’t let me throw any science in your way…