Markets continue to show signs of being extremely overdone on the upside with technicals currently deteriorating faster than the DJIA may be able to retrace to 10,000. The Trail of Rally post of May 11, which predicted the summer rally, complemented the bottom call made in the Giant Bear Miscalculation post on Feb 20th this year. Those market conditions are a part a structure of price configurations which move like tectonic plates under trends of various dimensions and also beneath the business news noise so inaccurately labeling various items as responsible for daily price action.
Current rally conditions have perplexed the Bears with relentless late session rallies coming after solid interday breaks. As in most moves, these rallies are a result of a combination of factors but primarily a bearish complacency and a reliance on already well known macro information. The Bears had a feast but those days are gone and the Bulls have the tactical advantage of surprise now.
The most notable stock market rally from a zero interest rate base was in Japan in the nineties. Recently a Bloomberg article published a chart showing the similar contours between current market patterns and Japan's rally. Of course the comparison ask you to believe the similarities will continue and extrapolates a 40% gain in the SP500 during the remaining balance of this year. The downside however is that if you simply follow the chart, one sees an ultimate death dive in prices and a bearish rolling line into the present.
Stock rallies in zero rate environments which measure the underlying economic conditions based on the performance of stocks is a big mistake. Stocks will almost always be the initial primary beneficiary of an investment landscape which leaves few alternatives. The ultimate roll over of rallies such as these is due to the fact that all the things that did not work before the big break, still do not work very well at the recovery break. That would include autos, retail, construction, and banking.
