What is the market sentiment saying in the face of this massive sell off the last three weeks? It has barely moved, in fact it became more bullish this last week by a touch. Currently the Bulls are at 47.3% and the Bears are 23.7%. The Bullish number is the one to watch in my opinion and over the last three weeks it has been 49.5, 46.3 and last weeks 47.3. In addition, the 23% bears is really a very small number who are outright bearish, sounds like a minority to me.
The market survey is from “Investors Intelligence and is a weekly poll from the top market newsletter writers in the country. These guys are wrong most of the time and are typically trend followers. By the time it is obvious to everyone else, they become bearish at the bottom, no big deal, but that is right when it is going to go the other way, a very big deal.
They typically get it wrong on a constant basis and with a bullish signal coming in at 35% or below, this move has a long way to go before it is done, that is if it goes to a market extreme. Is it possible it stops here and recovers and so on, Yes?
The point does need to be made that the downside potential for this move is S&P 1020 to 940 before a sustained move of any magnitude might be made in the reverse direction. That is for the S&P futures not the cash market, but both will be pretty close.
It is interesting to note, that this week, consumer confidence is at its lowest level in more than 30 years. If the consumer is not up to the task of supporting this economy, then it is going to take a lot of government stimulus to do the job and I am not sure they are up for it, given all the bad press about the budget. Who knows, they might just pull out QE3 in “Stealth” and pump more liquidity in the system. In fact, the Fed said that they are committed to keeping rates low through 2013. That is about the most brazen statement the Fed has made in the last three decades I have been following the markets. The Fed will barely tell its intentions a few months out and now they are saying what there policy is for the next two years out. Wow, unbelievable. It goes to show you how far we have come. They are basically out of bullets, with rates where they are today.
It is almost like an oxymoron or a dichotomy if you will, in that as S&P has raised there risk factor on Treasuries, a higher interest rate will be the likely response the market will ask for. More risk, the greater the return, but the Fed says that they are committed to keep rates low with no change in policy for the next two years? The only way they can do that is for the Fed to continue to buy up all the available Treasury Bonds as they come due and keep on doing that to swallow up the supply.
I don’t know about you, but that sounds like terrible news. It will all get transferred over to the higher inflation eventually and that means a constant loss of buying power, wealth and can be called a hidden tax. You will see in the next 6-12 months, inflation really kicking up.
One more thing. The Fed has been paying interest to Bank Deposits, money the Banks gave to the Fed and that is the reason that we have not seen more inflation up to this point. They have huge sums of there money and no incentive to loan out the money to get the economy going. Does that not sound odd, for an economy that wants to get growth going again. Well, that is if that is there true intentions. Lots of problems and they are not so obvious to the lay person on the street, but all the signs are there that something is not right.
So, what are the markets intentions for the next three months. It may very well be a continuation to the downside to levels mentioned above. Maybe then the crowd will become bearish enough to get a big rally in the opposite direction and they will be wrong again.
Coming up on September and October which are the worst stock market months out of the year. We could see a counter trend rally for the next week or two, but be on guard for a continued move down to the above levels mentioned at a minimum.
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No trading for me on Friday, as I thought I might take the day off as I mentioned in Thursdays blog. With the great week I had there was no need to push it. I made a few unwanted mistakes Thursday, even though I had the best single day of the year and saw that as a moment to pause. We will see what this week has in store.
Trade well, and committed !
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