Yesterday in my aftermarket analysis I pointed out that now is not the time to go short and it is better to be in cash. True enough, today SPX went up by 20 points and came down 16 points, ending the day with about 4 points gain. Talk about tail chasing the dog! That’s because today the mad scientist gave Kool-aid and hopium to the Algos and they started running crazy. Like the true Pavlovian dog, the market starts salivating with the mere mention of easing from Fed. Talk about recovery. Not surprising when you see the following graph.
All the gains in SPX have come on the back of increase of balance sheet of FED. Not at the back of any economic growth. Welcome to the recovery Mr. Geithner. But these guys have actually painted themselves in a corner. The Jobs of USA have been shifted to other low wage countries, wealth of the middle class have been sucked by the top 1% and debt is now so massive that any incremental debt has no positive return. The only thing left for them is to print.
With zero rate of interest, people who live on fixed income are on the verge of desperation, pension funds taking undue risk for extra yield and risking the future pensions of the hard working men and women, the labour force participation is lowest in 30 years, with actual unemployment and under employment in high teens, only thing that gives any illusion of prosperity to Mr. Obama and his henchmen is high share/stock prices. And that is the actual unwritten mandate of Fed.
If you remember my theory of stock market, it is simply rigged! So what the manipulators will do next? Option expiry is this week and Monday after option expiry is historically a red day. So I think the selling will continue till next Monday or Tuesday.
All these are a part of forming the top and top will not come till we reach SPX 1450+ or DOW 14000. So I think next move will be up and a very powerful one that too. When everyone is negative and worried, that is when they will pump the market, again on thin volume, till all the money sitting on the sideline is sucked in. That is when the sushi will hit the fan.
But we don’t care so long we understand how the crooks work. I shall call out as I see the bottom of this sell off and go long thereafter. Economy and growth be damned!