Best of the Week
Most Popular
1.UK General Election BBC Exit Polls Forecast Accuracy - Nadeem_Walayat
2.UK General Election 2017 Seats Final Forecast, Labour, Conservative Lib-Dem, SNP - Nadeem_Walayat
3.UK General Election 2017 Forecast: Conservative 358, Labour 212 Seats - Nadeem_Walayat
4.Theresa May to Resign, Fatal Error Was to Believe Worthless Opinion Polls! - Nadeem_Walayat
5.UK House Prices Forecast General Election 2017 Conservative Seats Result - Nadeem_Walayat
6.The Stock Market Crash of 2017 That Never Was But Could it Still Come to Pass? - Sol_Palha
7.[TRADE ALERT] Write This Gold Stock Ticker Down Now - WallStreetNation
8.UK General Election Results Map 2017 vs 2015 vs Opinion Polls - Nadeem_Walayat
9.Orphaned Poisoned Waters,Severe Chronic Water Shortage Imminent - Richard_Mills
10.How The Smart Money Is Playing The Lithium Boom - OilPrice_Com
Last 7 days
Grenfell Fire: 600 of 4000 Tower Blocks Ticking Time Bomb Death Traps! - 22nd Jun 17
Car Sales About To Go Over The Cliff - 22nd Jun 17
LOG 0.786 support in CRUDE OIL and COCOA - 22nd Jun 17
More Stock Market Fluctuations Along New Record Highs - 22nd Jun 17
Understanding true money, Pound Sterling must make another historic low, Euro and Gold outlook! - 22nd Jun 17
Green Party Could Control Sheffield City Council Balance of Power Local Election 2018 - 22nd Jun 17
Ratio Combo Charts : Hidden Clues to the Gold Market Puzzle - 22nd Jun 17
Steem Hard Forks & Now People Are Making Even More Money On Blockchain Steemit - 22nd Jun 17
4 Steps for Comparing Binary Options Providers - 22nd Jun 17
Nether Edge & Sharrow By-Election, Will Labour Lose Safe Council Seat, Sheffield? - 21st Jun 17
Stock Market SPX Making New Lows - 21st Jun 17
Your Future Wealth Depends on what You Decide to Keep and Invest in Now - 21st Jun 17
Either Bitcoin Will Fail OR Bitcoin Is A Government Invention Meant To Enslave... - 21st Jun 17
Strength in Gold and Silver Mining Stocks and Its Implications - 21st Jun 17
Inflation is No Longer in Stealth Mode - 21st Jun 17
CRUDE OIL UPDATE- “0.30 risk is cheap for changing implication!” - 20th Jun 17
Crude Oil Verifies Price Breakdown – Or Is It Something More? - 20th Jun 17
Trump Backs ISIS As He Pushes US Onto Brink of World War III With Russia - 20th Jun 17
Most Popular Auto Trading Tools for trading with Stock Markets - 20th Jun 17
GDXJ Gold Stocks Massacre: The Aftermath - 20th Jun 17
Why Walkers Crisps Pay Packet Promotion is RUBBISH! - 20th Jun 17
7 Signs You Should Add Gold To Your Portfolio Now - 19th Jun 17
US Bonds and Related Market Indicators - 19th Jun 17
Wireless Wars: The Billion Dollar Tech Boom No One Is Talking About - 19th Jun 17
Amey Playing Cat and Mouse Game with Sheffield Residents and Tree Campaigners - 19th Jun 17
Positive Stock Market Expectations, But Will Uptrend Continue? - 19th Jun 17
Gold Proprietary Cycle Indicator Remains Down - 19th Jun 17
Stock Market Higher Highs Still Likely - 18th Jun 17
The US Government Clamps Down on Ability of Americans To Purchase Bitcoin - 18th Jun 17
NDX/NAZ Continue downward pressure on the US Stock Market - 18th Jun 17
Return of the Gold Bear? - 18th Jun 17
Are Sheffield's High Rise Tower Blocks Safe? Grenfell Cladding Fire Disaster! - 18th Jun 17
Globalist Takeover Of The Internet Moves Into Overdrive - 17th Jun 17
Crazy Charging Stocks Bull Market Random Thoughts - 17th Jun 17
Reflation, Deflation and Gold - 17th Jun 17
Here’s The Case For An Upside Risk In The Global Economy - 17th Jun 17
Gold Bullish on Fed Interest Rate Hike - 16th Jun 17
Drones Upending Business Models and Reshaping Industry Landscapes - 16th Jun 17
Grenfell Tower Cladding Fire Disaster, 4,000 Ticking Time Bombs, Sheffield Council Flats Panic! - 16th Jun 17
Heating Oil Bottom Is In.(probably) - 16th Jun 17
Here’s the Investing Reason Active Funds Can’t Beat Passive Funds—and It Worries Me a Lot - 16th Jun 17
Is There Gold “Hype” and is Gold an Emotional Trade? - 16th Jun 17
The War On Cash Is Now Becoming The War On Cryptocurrency - 15th Jun 17
The US Dollar Bull Case - 15th Jun 17
The Pros and Cons of Bitcoin and Blockchain - 15th Jun 17
The Retail Sector Downfall We Saw Coming - 15th Jun 17
Charts That Explain Why The US Rule Oil Prices Not OPEC - 15th Jun 17
How to Find the Best Auto Loan - 15th Jun 17
Ultra-low Stock Market Volatility #ThisTimeIsDifferent - 14th Jun 17
DOLLAR has recently damaged GOLD and SILVER- viewed in MRI 3D charts - 14th Jun 17
US Dollar Acceleration Phase is Dead Ahead! - 14th Jun 17
Hit or Pass? An Overview of 2017’s Best Ranked Stocks - 14th Jun 17
Rise Gold to Recommence Work at Idaho Maryland Mine After 60 Years - 14th Jun 17
Stock Market Tech Shakeout! - 14th Jun 17
The #1 Gold Stock of 2017 - 14th Jun 17

Market Oracle FREE Newsletter

The MRI 3D Report

Stock Market Rally Over, Prepare for New Bear Market Lows

Stock-Markets / Stocks Bear Market May 26, 2009 - 12:15 AM GMT

By: Clive_Maund

Stock-Markets

Diamond Rated - Best Financial Markets Analysis ArticleFundamentally the rally in the broad stockmarket from early in March is viewed as being the result of a combination of media hype, wishful thinking and short covering, but there may be more to it than that - it would appear that a sizeable proportion of the TARP (Troubled Asset Relief Program) funds not thus far deployed have been used to drive up the stockmarkets in order to create a positive environment for the banks to issue secondary shares and thus raise equity. While this is perfectly understandable, it also means that once the banks have finished selling this stock to the public, or the market is simply exhausted by being soaked in this way, it is likely to go into reverse in a big way.


Technically, the rally in the broad stockmarket looks to be over and there are several important reasons to conclude that this is the case. On the 1-year chart for the S&P500 index we can see that despite the impressive gains, all the market has managed to do is rally from an extremely oversold position to approach its falling 200-day moving average, and so there is no reason thus far to consider that it is anything other than a typical bearmarket rally, albeit a big one. The rally stalled out a couple of weeks ago in the important zone of resistance shown and the index has since been retreating beneath the 200-day moving average, and late last week it started to break down from the uptrend in force from mid-March, a bearish development.

On the 6-month chart we can examine recent action in more detail. On this chart we can see that the breakdown from the uptrend occurred on Thursday, although thus far the break is not big enough to be conclusive, so we could yet see a short-term rally back towards the 920 area, especially as the fast stochastic (not shown) has dropped back to provide the leeway for such a move. However, the trendline break still has bearish implications that are definitely amplified by the growing preponderance of downside volume over the past couple of weeks, as shown by the red volume bars at the bottom of the chart, which has led to the first significant drop in the On-balance Volume line since the uptrend started, another negative sign. In addition a bearish "shooting star" candlestick appeared on Wednesday, when the market attempted to the challenge the early May highs and failed, dropping back to close near the day's low. A top area appears to be forming between the rising 50-day and falling 200-day moving averages, which are rapidly converging. This top area is bounded by the resistance shown and a support level which has become evident in the 880 area, breakdown below which would likely trigger a steep decline.

The abnormal and surreal nature of the recent rally is made starkly clear by the small charts below, prepared by www.chartoftheday.com. Both of these charts go way back to the 1930's and the first of them shows the extraordinary collapse in earnings of the S&P500 companies. The second of them shows that the resulting overall P/E ratio has risen into the stratosphere.

These charts are most interesting as they demonstrate that earnings no longer matter to investors - all it takes to make the market go up these days is hope, TV commentators talking the market up - and a big dollop of TARP money. This is what is commonly known as a disconnect from reality. One thing is for sure - you don't want to be around when the market suddenly realizes that Barack Obama is not going to be able to wave a magic wand and make everything right, even with the benefit of creating trillions of dollars out of thin air to bid everything up. All this manufactured money had better create a recovery soon or the market is likely to implode. However, recovery is unlikely for, as we know, the banks are jealously hoarding their government granted largesse, and even if they made the funds available to the wider world, companies and individuals are so lamed by debt and fearful that they are in no mood to borrow, no matter how low the interest rate. So let's put 2 and 2 together - the stockmarket rallies hugely to discount recovery, but the recovery never materialises. Well, what a shame - it's an awful long way down from here.

Some market observers have been making comments in the recent past to the effect that leveraged ETFs are a scam designed to sluice money from retail investors into the pockets of professionals. While we would concur with this it shouldn't really be surprising, as to the extent that they are a scam they are simply following the rich tradition of many Wall St financial instruments, and compared to sub-prime mortgages, for example, they are a "mom and pop" operation as many European banks and financial institutions still smarting from immense losses will attest.

This is not to say that you can't make good money out of them at times - in the same way that an experienced gambler may enter a casino in Las Vegas with a fair chance of coming out richer, but knowing that whatever his fortunes, the house will always win. Right now there are some bear ETFs which have been driven down almost to zero by the big market rally that look set to do really well if the market heads south soon as expected, even taking into account the eroding time value of option elements comprising them and the suspected tendency of the management of these funds to use them as ATMs.

On www.clivemaund.com we will be looking very soon at the associated effect on the dollar and the Treasury market of a reversal in the broad market and also at the likely impact of all this on prices of Precious Metals and oil and on resource stocks. We called the big rally in copper back in February before it began, and called the big rally in oil almost at its inception, and then more recently for copper to enter a trading range and oil to continue higher, which is what happened, and finally called the latest rally in gold and silver, although they were expected to perform better than they have on the recent dollar weakness. A big issue that we will address soon is whether gold and silver can break out shortly to new highs or whether they will get caught up in another downwave of deleveraging.

By Clive Maund
CliveMaund.com

For billing & subscription questions: subscriptions@clivemaund.com

© 2009 Clive Maund - The above represents the opinion and analysis of Mr. Maund, based on data available to him, at the time of writing. Mr. Maunds opinions are his own, and are not a recommendation or an offer to buy or sell securities. No responsibility can be accepted for losses that may result as a consequence of trading on the basis of this analysis.

Mr. Maund is an independent analyst who receives no compensation of any kind from any groups, individuals or corporations mentioned in his reports. As trading and investing in any financial markets may involve serious risk of loss, Mr. Maund recommends that you consult with a qualified investment advisor, one licensed by appropriate regulatory agencies in your legal jurisdiction and do your own due diligence and research when making any kind of a transaction with financial ramifications.

Clive Maund Archive

© 2005-2017 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

Frank
01 Jun 09, 10:22
Yeaaaa okayy

This dude was saying the same bearish tuff at S&P 666 - that was 41% ago!!


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Catching a Falling Financial Knife