Markets defy bubble predictions, but for how long?

Fibonacci Forecaster

The story of the week is the Fed. What else is new? I had a discussion with a person I consider to have a good stock market mind this past week who is not so fond of Bernanke. He was upset about the Fed minutes. He went on a rant in his various forums. I’m discussing this because his sentiment represents the sentiment of many.

My question to him was, “What would YOU do?”

He thinks Bernanke is nuts. OK, fine. Complaining is one thing. I pressed. What did he think Bernanke should do? I explained that Bernanke’s hands are tied. My take on all this is stimulus would have ended a long time ago if Congress and the president would have been able to work together. But it was a full year before the election, right at the height of the debt ceiling crisis when the president tried to push through a jobs bill that was blocked by House Republicans and nothing in terms of fiscal policy has worked since.

I know O’Reilly isn’t the last word on anything, and you should know I’m not a Fox junkie. I barely watch it. But I believe he had on Stossel, and they were talking about Obama already effectively being a lame duck president. In one sense, it kind of feels that way, doesn’t it? Expectations have never been lower. Congressional approval has never been worse. I think people are expecting more out of the New York Mets than the dysfunction in Washington, D.C.

Getting back on point, I explained I support Bernanke because of the dysfunction in D.C., and I think he has to overcompensate for it. Well, he didn’t like any of it. Fine, what he should he do? I was expecting some kind of profound answer, maybe that was my problem.

I finally got an answer. He said, “Move to Bora Bora.”

Here’s the thing, there are lot of people denigrating, criticizing and performing all kinds of character assassinations on the good Chairman Bernanke. But not a single one of these people has a reasonable solution of what really should be done. All they can do is complain. But I’m tired of listening to the complaining. Tell us what you’d like the chairman to do. At the end of the day, we finally came to agreement because we both believe the bond market is in trouble and is going to be in trouble. I just don’t think you can cut the patient off cold turkey or even believe the patient is ready to be weaned off meds.

Markets liked the news this week, even as several Fed members are in favor of tapering as soon as before the end of this year. It’s not going to happen. Not when you have nearly one-third of the jobs created last week coming from waiters and bartenders. C’mon, what’s the risk for a restaurant? These individuals work on tips anyway, so it’s a no-lose proposition.

So now the good chairman said the market misunderstood, they misread Fed intentions. Whatever the case, they continue to look for reasons to buy. The overall reason is the great bottoming process we had three weeks ago. You can have a bottom just about anywhere if it displays the correct characteristics of a bottom. What people fail to realize is that in a bull market bottoms come quickly and by the time they realize it, the market is already at new highs. This particular market is at a few important inflection points heading into the new week. First of all, its 261 weeks off the peak of the oil bubble in 2008.

So if you are rightly concerned about oil starting to break through, this could be one of the most important sequences of the entire year. If oil responds, you can have a high in the next few days. If not, then ignoring the cycle means something larger is going on and what that really means is your monthly fill up your tank bill is going to be larger. We are already at the point of challenging that great 2011 high, which will still be 903dg on the Gann square of 9 but unfortunately it won’t be at 609 trading days up the way it was last time.

What you are looking at here is one of the all-time great pivots. It’s in my new book which is due out in about eight weeks. The 2011 top is a perfect storm cluster of Gann and Fibonacci. If it gets that far, it’s the next real test for the oil market. But if it does get that far you can count on astronomically high gas prices in places like New York and California, which begs the next question. How much can this economy really absorb?

Next page: Nasdaq bubble?

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