Markets finally have pullback

It’s been a while since my last post. It seems to be getting more and more difficult to find time to update. My intention is to post as events occur, and we certainly have had events since the last post. The mid-term elections went about as expected. Actually quite a bit better than expected in the state races. It was a little disappointing on the left coast, at least from my perspective. Not sure how the voters in my state could re-elect Patty Murray, the person who praised bin laden in the days after the 911 attacks for his nice work in building daycare centers, apparently for the children as their parents were off learning how to build bombs and blow up buildings. But that must just be my right wing wacko side coming out. If she said nice things about osama I’m sure he must be a nice guy. And then somehow Reid pulled ahead after being behind in all the polls. How’d that happen? I’m sure there was no union influence. And Barbara Boxer and Moonbeam Brown??!?! It’s really too absurd to make much of a comment. The voters get what they deserve. It’s too bad though. California is otherwise a nice place. But the market was pleased with the results. It had been expecting and pricing in those results for some time.

Then the markets got a further boost from QE2, which is more appropriately being called Titanic 2 by many commentators. I guess the market thinks by destroying what’s left of the US Dollar that stocks should be valued, or at least priced, at higher levels. Those in power will do everything they can to inject a little adrenaline into the system rather than to cure the underlying problem. Cure would be more painful short-term, and nobody wants to take the blame. There seems to be no end to the cycle of monetizing debt. But there will be an end at some point, and that end will be much more painful when it arrives. It will be interesting to see if this new crop of Republicans can make a real attempt to get spending under control. If so their might be hope. Although they’ll likely suffer in public opinion for doing so. All I know is they can’t keep printing money. Bernanke seems too obsessed with the threat of deflation. It seems like we are already in the midst of deflation. The common wisdom (there’s an oxymoron) is that all this stimulation will cause inflation, and that gold and other commodities will keep on climbing. It seems logical. The dollar isn’t the only currency falling. It seems logical that gold can only keep going up. That trade has about as close to a 100% bullish opinion by traders as I’ve ever seen. Also bullish are of course copper and other industrial metals fueled by China demand in addition to the falling dollar. I have to think that everything just said, and everything being said in the financial press, is already priced into these markets. With the trade so one-sided I have to think that there must be something wrong with the common wisdom. It is possible that all the stimulation in the world might not be enough to fend off deflation. If the job market fails to improve and if housing prices keep sliding it would be difficult to make a case for inflation any time soon, even with the concerted effort to destroy the currency. Maybe I’m just indulging in my contrarian nature. Maybe inflation is just around the corner and all the traders buying into that concept are correct. Maybe it will be different this time in that all the traders crowding out the same side of the trade will all be correct and all make money. I’ve never seen that happen. But there’s always a first time.

Regarding the stock indexes, way up at the top of this post is the chart of the S&P 500 ETF. It shows the clear uptrend via the blue adaptive moving average lines. In the middle sub-graph is the adaptive CCI, this time with a slight smoothing to smooth out the bumps a bit. It shows that the CCI went above the plus 100 line just as this uptrend got started, and mostly stayed there, with the exception of a couple of brief dips, until just a couple of sessions ago. The double stochastic in the bottom sub-graph shows some nice entry points when it dipped below the lower reference line while the CCI showed a trending condition. The stochastic is once again below the lower reference line, however this time the CCI is nearing its zero line, and price is about to test the uptrending moving averages, as well as a swing point high from about three weeks ago. It will be interesting to see if this uptrend starts to roll over. If it does there will most likely be more rally attempts, and perhaps more two-sided and overlapping price action. I hear many analysts talking about a year end rally, but those usually follow weak September of October markets. This time the market has been straight up during those two months. There might not be enough left for a further rally into the end of the year. It will likely try, so I’ll be keeping an eye on a bounce off the moving averages to see if it stalls out on a potential re-test of the highs. If that re-test, should it occur, doesn’t attract volume then it is likely to re-test back down with perhaps a more meaningful decline to follow.

I will try to update as this unfolds. No promises though. It seems the S&P comments are also applicable to the gold market.

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