Thursday, September 30, 2010

Could Be an Important Reversal

Today's move will be interesting.  When the S&P was playing with 1130 I talked about a 'trap'... that is a move over a key level (causing bears to give up, and every last person feeling performance anxiety to join the long side) and then a reversal back down.  That was working out well last Thursday as the S&P 500 fell back below 1130....until Mr. Tepper showed up premarket Friday to tell us "no one loses in the current paradigm".  That caused the gap up Friday (back over 1130) and away we went without a care in the world.

Eventually these bulls are going to get trapped on a surge and reversal.  The market has become too easy - just buy every dip, any dip, even if its 3 minutes in duration.  S&P 1130, 1150, 1170 - somewhere.  Now we have to scan CNBC guest list for tomorrow to see who can goose the markets with talks of "no one loses ever in America due to Ben Bernanke."

As always the close is more important than the intraday, so let's see what happens at 4 PM.  One word of caution... casting aside today's good Chicago PMI, this is the first regional report in a long while that has been quite good.  A month ago this rally started on pledges of QE by the Fed but was turbocharged that first day of the month.  The catalysts were "ok" Chinese PMI followed up by a US ISM Manufacturing number mid morning Sept 1 that came out of the wild blue yonder.  It did not fit with any of the other regional data, and hence caught everyone off guard.  It still makes no sense to me in retrospect.  While the market has been taking ALL news as good news of late, tomorrow we have another US ISM Manufacturing and aside from today's Chicago PMI the regional surveys still show weakness.  Can we count on 2 months of outliers?  Or will we see a return to mean and a 'disappointing' US ISM?

Even bigger question, does anyone care?  Disappointing data just means more QE.  But how many more times can we rally on "things suck, but more QE coming?"  It's been non stop for weeks.

Anyhow the next 24 hours will be interesting.

(As an aside I have read that on some technical measures the NASDAQ is more overbought than at any time in 1999.  If you lived 1999 you know how insane that means things are right now)

By the way, this whole rally has been about debasing your buying power (backdoor theft of wealth) as the dollar has been crushed this month.  Priced in gold, the S&P 500 has done nothing this month and has had an awful year.   Thankfully we're pricing everything in little pieces of green toilet paper.

S&P 500 priced in gold.... not so 'rosy'.

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