The 15 month bear market rally is over

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Subprime JD's picture
Subprime JD
Status: Platinum Member (Offline)
Joined: Feb 17 2009
Posts: 562
The 15 month bear market rally is over

Its been a good 16 months since the March 09 lows. Money printing, loose accounting and trillion dollar deficits helped the incredible push. Since then the market has rocketed higher with its latest peak at 1218. Currently, the S&P has fallen 12.6% off its recent high. The latest peak was on April 26th, and its been downhill since then. I believe that the market has made its interim peak and will head lower from here on out. These are the reasons:

(1) Jobless claims have bottomed and are increasingly rising

(2) The majority of the stimulus package has been spent

(3) Monetary expansion has ceased for now

(4) The latest jobs data was absolutely horrible. No job creation in the private sector DESPITE the accomodative actions by the gov. Census hiring will begin to decline from this point.

(5) States continue to get squeezed, more layoffs, decreased economic activity

(6) Problems out of the Eurozone and China will put a continuing strain on the US economy

(7) Continued deleveraging out of the household sector: bankruptcies/foreclosures/student loans

(8)The homeowner squatter stimulus will fade as more non mortgage paying homeowners are evicted, forcing them to pay rent

All of these factors COMBINED are enough to take out the bullishness in market participants. Its very possible that the market can have many zigzags along the way, such as the 2000 S&P market top which was very choppy and volatile. On balance, equities will fall from this point.

Many are erroneously assuming that the  FED will enact QE part II at the first sign of trouble. I believe that the fed will be more patient than most believe. More monetary expansion is the last thing the fed wants to do, for ecnomic, political and for maintaining the perception that emergency measures such as QE are not needed. However, as deflationary forces continue to accelerate the fed will fold its hand and conduct QE II. The issue of course is timing. Just a guess, but i believe that when the S&P begins to near its 666 low the presses will be released again.

S&P 1000 is a huuugggeeee technical and psychological level. Once 1000 is broken the descent will be rapid. It will probably take several months to break the 1000 level but once it does the "hope" factor will die quickly.

Along the same lines, the government is loving this. Markets rebounded sharply and trillions of treasury paper have been offloaded and recycled. Yields are sitting at 3.2% on the 10 yr, very very safe for gov financing. Once the yields are low enough and the market is under severe stress the dollars will fly. The question at that point is what effect will the QE II and for how long? As TD from zero has laughingly pointed out recently, central bank punching power continues to get weaker. Silent from the party has been the US FED. I expect the fed to maintain its silence for a lot longer than most others believe.

 

Bear

Dogs_In_A_Pile's picture
Dogs_In_A_Pile
Status: Martenson Brigade Member (Offline)
Joined: Jan 4 2009
Posts: 2606
Re: The 15 month bear market rally is over

BMT -

The market will go up.

The market will go down.

Sometimes the market will go sideways.

Trade in the direction the market is moving and take what the market gives you.

Yeah, I know, broken record, but you already knew what I was going to say.

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