Price Technicals Still Bad

BaseOp2 has looked at the overall interventionist efforts by central governments to preserve and protect debt as the reason to make the 'buyside' the strategic play. However, the particular technical data mined by QRiskValue is continuing to portray a gloomy price construct where technical stocks seem particularly bloated by a blind faith that they are immune from the money problems of the world. These price technicals are awful and seem to claim a serious downside move will engulf equity markets if any hitch in the broad rescue efforts by the collective world financial players fails to materialize. Even worse, they may be saying a sell off in inevitable regardless of the current efforts to repair economies. The S&P 500 is less worrisome on the downside but only when playing a spread between the NQ 100.

Save It All

Equity markets still in a trading range with the path of least resistance on the upside. Europeans keep fumbling with debt issues but slowly seem to be dragging themselves to some kind of solution. Massive liquidity and top tier economic health leaves plenty of room for rallies given the pervasive bearish sentiment held by a large segment of the trading and non trading population.

Forty plus VIX, the great predictor of the last event, illustrates just how bearish the world has become given nearly all volatility currently represents downside bets.

The Fed and Treasury are taking no chances and have played overkill in providing anything stimulating as a prevention against Mr. Downside. Any blip lower in the Dow Jones now is a reason to plead with the rest of the world to keep on rescuing the wounded.

Things are not great out there for the many. Housing is a disaster. Job growth is nowhere in sight and creating jobs is going to be a challenge for years.

Governmental actions to stem financial trouble unfortunately has little to do creating economic growth in the US or anywhere else. Intervention is all about protecting assets. The notion that jobs will come if entities are saved is crap. If job growth happens, great, but these boys could really could care less.

Since the Lehman event, putting out every fire and saving everything but the middle class is the course of action. The best long term upside chance the latter may have is to let some it burn.

Is It Safe?

Markets are going through another round of ' is it safe?' as action has moved from steep break to sharp rally. European accommodations trying to avoid any chances for a systemic failure along with Fed and Treasury positive pronouncements of their own have helped the upside. Equity inflows have increased again as managers execute requests for more stock. Obama jobs initiative verbage, fat corporate cash reserves, and low values to alternative investments make the path of least resistance to the upside as long as markets are constantly reassured by governments of their willingness to be vigilant in arriving at a debt solution.

If all efforts allow world economies to limp to the next year, it is likely stocks will lead all returns as commodities and fixed income become less desirable. But stocks have to make it through the Fall first.

This Time For Sure

Equities have recovered substantially from their lows as continued accommodation from the Fed persists in order to defends its asset inflation strategy. Given the Feds decision at their last meeting to keep their lending rates at zero for the next two years, they have committed to an all out assault on world banking bears, who for a while, seemed to be gaining credibility as sovereign debt and US debt ceiling confusion seemed to increase chances of downward pressure on equity prices.

In their collective mind, the Fed believes that its best and or last chance is to keep the top of the economic ladder fed. Knowing the middle class is left out of the stimulus and any real ability to generate wealth through economic expansion, the Fed is concentrating on increasing excessive cash overflow at all levels of the banking/Fed system in the hope the upper strata will be cushioned against almost any financial calamity. Protecting those with the most virtually avoids large flights of capital. The middle has nothing to move including their largest investment, real estate, which can hardly move at all.

The question is whether the Fed's strategy will work. Without broad economic participation by a growing work force, pumping money usually creates asset bubbles. The Fed believes the severely depressed real estate sector allows a world of flooded cash reserves in order to buy time for economies to have an opportunity to take on risk by expanding operations by creating jobs. The Fed however is fighting a ' less is more ' productivity model adopted by nearly all corporations with the advance of 'app' technologies replacing every other worker.

Equity price volatility has the Fed extremely worried and it is reasonable for the Fed to redo its theme of forever accommodating each time price dives appear. The worry is legitimate. The Fed has now placed its last ' I am warning you ' out there with not much left for influencing their top tear strategy. If prices were to return to a sharp volatile retracement of the current recovery, the consequences to price will be much harsher. Safe harbor credibility will be lost and repricing will mean equities liquidation on a grand scale.

Waiting for Goodanke

Markets are waiting to hear from Bernanke to see if he can establish a safety line which will remind everyone that all is not lost if and when any dismal economic data appears. This is of coarse a fall back strategy appropriate for the Fed's place rather than a forward attack plan which one might think would come from the current administration. Treasury has been hoping all previous measures of support would do the trick especially given the estimated 1.2 trillion dollars of liquidity provided by the Fed in loans to banks in this country and abroad primarily in 2008 and 2009.

Knowing the world depends on continued massive breast feeding from the Fed to hold together economic order is unfortunate but a reality. Normal business growth seems to be threatened by a world banking system flush with public funds but little from enterprises big and small which create jobs. These public funds provided to banks are apparently for their use only thanks to the continued cash flow from lobbyist representing the financial industry.

As for trading, more positive market internals are healing the broad indexes although tech sensitive indexes have a more bearish construction. Tech is experiencing an aging process but still attracts the same interest as other puzzling investments such as gold. Google's purchase of Motorola is an example of how the large techs look to become utilities of commerce as opposed to innovators or inventors.

Fed Starts Clock

Fed seeks exit from ‘new normal’ economy

By Barry Wood

WASHINGTON (MarketWatch) — The commitment by the Federal Reserve last week to hold its short-term interest rate at the current near-zero level for two years was a bold move.

Knowing the Fed’s aversion to setting specific time frames, former central bank official Joseph Gagnon says he nearly fell off his chair when reading the statement. “I thought it must have been a typo,” says Gagnon, now an analyst at Washington’s Peterson Institute for International Economics.

There are two main messages from the Aug. 9 move. First is the sobering but honest assessment that the economy is weaker than thought only six weeks earlier. The Fed’s forecast of 3% second-half growth has been thrown out the window and a new assessment is being prepared. Secondly, with more fiscal stimulus unavailable, by committing to two years before short-term rates rise, the Fed is pushing harder on its own stimulus pedal to revive the weak economy, especially the long-depressed housing sector. (more.. entire article)

Up Sideways

Markets had big action last week which certainly looked like exhaustion selling. The technicals, while vastly improved for the 500index, are still lousy on the NQ100 side. Fed has answered the bell again for corporate accommodation although banks may have a tough time working any profits out of the flattening yield curve.

Today's rally action is a part of a story of a world where there is no big growth for business but stocks with dividends will provide at least a yield alternative to treasuries and other paper. Higher stock prices will not do much for the economy as in years past as the austerity frenzy provides fewer jobs. Corporations will continue to squeeze operations in order to be competitive as demand will remain lousy.

If there is a Euro bank disaster then US markets will be looking at momentum plays eroding prices to test the March 09 lows. Hiding from falling equities would lead to the zero rate Fed scenario.

Sub Prime Review Credibility Test

Talk about screwing up a brand name. Standard and Poors, already suffering from a major credibility issue from its approval of all things sub prime, has almost guaranteed irrelevancy for rating agencies in the years ahead. Rating a business is one thing, but rating any government with the ability to print money, tax, and claim almost any property, is kicking a sleeping dog.

Taken from the various colossal business strategy blunders such as New Coke, the business heads of S&P may have believed by attacking U.S./Obama credibility, they might create a stronger voice among Republicans in the yet to be determined rules regarding the implementation of financial regulations of Dodd/Frank. Whatever the reason, both political parties will ultimately find it in their best interest to hastened the day where S&P will be legislated to a minor role in the credit worthiness review process for all business entities.

Fed will have to defend itself and Treasury regarding the S&P attack and will probably develop another all things easy for business plan as markets price adjust to the continuing debt rating issues.

Bailing So Easily

Market rode despair lower as world banking seems to taking a bit of hit. Imagine all those smart government subsidized bankers not being able to get figure out how to run a world with no job growth, no return on savings, and no margins to screw people.

TARP, the debt ceiling deal, and every pro business ruling by the Supreme Court, all been to the corporate world's advantage. It may be an oversight by investors to bail so easily, but being burned again seems so cruel. Ultimately, the best investments are not in cash and fixed income but in US companies who will continue to have a world of economic accommodation each time world economic order tilts.

Let's Get Long

Let's get long and volatile.

Jobs are few, stocks are down, no return on any money. Banks won't lend. Republicans look to start reign of terror over the next several years. TARP for banks and investment firms while it is austerity for everyone else.

Weakness in stock and index markets demonstrates just how vulnerable investments are today to stupid action. Gold keeps a bid as the dumbest form of investor climbs into the eventual giant bubble master deluxe gold fail-a-thon. Each day herds of gold bugs stampede up the lane to the top, merrily, merrily, etc. I thought ag bulls were the dumbest form of trader.

Jobs number on Friday does not have any fans, and in part, some of the Bear action has already been played in the first two trading sessions of this week. Stimulus by the Fed is being designed from some scientific invention which will be put into the food chain for economic consumption.