Nothing Like a Little Gloom to Excite Stocks

The Dow was up nearly 300 points at its highs yesterday, savaging bears who may have gloated over last week’s equally impressive decline.  These short-squeeze rallies are usually catalyzed by economic headlines, and it doesn’t seem to matter whether the news is good or bad, since the markets have a mind of their own and can sometimes surge on the gloomiest data. U.S. markets actually seem to thrive on bad news as long as it does not emanate from Europe.  But it is probably just force of habit that causes shares to rise at such times, since, for nearly a decade, ostensibly bearish stories came to be associated with a likelihood of further easing by the Fed. Easing is of course no longer possible with administered rates already at zero, but any news that might help us cling to the notion that things can’t get much worse is arguably a plus for stocks. 

So what were the day’s headlines? The top stories could not have been much gloomier. For starters, we learned that the inflation-adjusted income of male workers has not increased since 1978. Nor have households fared so well in more recent years despite Keynesian and monetary stimulus amounting to many trillions of dollars. Even with all of those digital bucks flooding the financial system, however, the income of the typical American family appears to have dropped for a third straight year and is currently at 1996 levels after adjusting for inflation.  A report on this in the Wall Street Journal noted delicately that the statistics showed “how devastating the recession was [our emphasis], and how disappointing the recovery has been.”

Rodney Dangerfield

That’s putting it mildly – not to mention, in a way that denies what we all know – i.e., that The Great Recession never left us…has been with us since the Great Financial Collapse of 2008-09.  Statistically speaking, our 1930s-style wallow has been the Rodney Dangerfield of hard times, failing not only to get respect from the press, the Federal government and its statisticians, but mere acknowledgment. To the credit of the mainstream media, however, they have ceased to seize upon such rallies as yesterday’s as evidence of anything more than a random walk run temporarily amok.  That’s progress of a sort, we suppose, although we’re not going to hold our breath waiting for the New York Times and their ilk to give us a market wrap-up that explains just how Fibonacci levels work.

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  • Rick Ackerman September 15, 2011, 8:22 pm

    That game is over, David. As I tried to make clear in Wednesday’s commentary, bank profits have been reduced to paltry transaction fees:

    http://www.rickackerman.com/2011/09/bankings-titans-finally-get-their-comeuppance/

    At this point, clearly, it is worth zero to “own the printing presses.” What can TBTB buy with the money — other, perhaps, than a little more time and a bigger crash?

    • David Tanner September 15, 2011, 8:31 pm

      Thanks for the reply. Just trying to honestly understand the game here.

      So if the govt gives the banks another $1 Trillion bailout, they can’t use that money to manipulate the markets?

  • David Tanner September 15, 2011, 7:40 pm

    A rally in the equities market coming on the heels of bad news shouldn’t be any more of a surprise than last week’s sell off in gold just prior to news that should have been bullish for gold (Swiss Franc news). If we believe that the gold market is rigged, why can’t we believe the same in stocks? The powers-that-be control the printing presses and they control the media. Therefore it’s no big deal to take down or pump up a market just prior to or on the heels of news that is already known ahead of time. Digital money is free. It can be created to control markets.

    Maybe I am naive, and if I am someone please enlighten me, but I am always amazed at the gold and silver commentators wondering how the commercials (banks) are going to get out of their massive short positions in the metals markets without losing their shirts. My answer is, “How can you lose your shirt when you own the printing press?” (Or at the very least, you are the puppet of the owner!) The money the commercials lose in their precious metals short positions is simply the dues they pay to keep playing the game of creating money out of nothing. What they are losing is nothing compared to what they are making. So the game continues……..

  • C.C. September 15, 2011, 5:47 pm

    “Easing is of course no longer possible with administered rates already at zero…”

    Disagree.

    To his credit, Jim Puplava has done a good job the past few months on his weekly program, indicating the many options yet open to the Fed – all without an outright announcement of further ‘easing’. They are approaching the situation in a manner that any competent MD would – measured application as the situation warrants.

    I would only add that if the major indexes begin to roll over significantly from here – say blowing southward past 10,000/1000, the pain & hand-wringing will be such to effectively drown out dissent. If you couple that with (‘official’) unemployment numbers heading in the other direction – hitting or passing 10%, well – the liquidity party is going begin in earnest, and it may not be modest.

    I have learned to never lose sight of the capabilities that determined governments have to distort and delay the inevitable.

    • Rick Ackerman September 15, 2011, 8:09 pm

      One would have thought that the once-widespread religious belief in an Omnipotent Fed had died by now. Anyway, does ‘easing’ even exist if there is no borrowing?

  • roger erickson September 15, 2011, 5:23 pm

    see “Economic Roadkill”
    http://www.counterpunch.org/2011/09/09/economic-roadkill/

    The points in this article may be overstated, “so far”, but still, this can’t be happening? Sub-prime auto loans? Sub-prime student college loans? What, exactly is the difference between those & Sub-prime GM & Goldman-Sachs loans? ??

    how many ways can we paraphrase pump-&-dump?

    how many ways out of a Gresham’s Dynamic are there?

    does there have to be blood in the streets?

    is the end-stage going to be Sub-Prime politician, gun & ammo loans? “Subsidized” by China? [Guaranteed lethal, by addition of propaganda PLUS melamine? No extra charge!]

    Didn’t we used to have an FBI? A DoJ? A Congress? An “electorate”?

    Have we sold even ourselves, with our own fiat?

    This means that the real fraud is tricking populations into mal-adaptive vs adaptive credit patterns, all for loan-service fees. Generate banker fees REGARDLESS of what the application is? How ass backwards is this? Banking has become a cancer on public purpose, pushing form over function.

    The argument over fiat budgets is entirely missing the point, and those who fall for it are being duped. It’s not about fiat currency volume, or about fiat-debt, it’s about perverting the banking system to generate fees regardless of budgets or application. We’re all being told to look in the wrong places – by mindless parasites.

    We have an economic EAIDS epidemic, and we’re infected by agents able to mis-direct our immune response to straw man arguments over the volume of fiat. All they want is a fee for any and all actions we take! And they DON’T CARE what actions, or even when we stop!

    Exhibit A: If we allow IRRRESPONSIBLE spending, we let the parasites run up huge fees, ready for application during inevitable collapse.

    Exhibit B: If we slow public spending, we let the same, flush, parasites apply their stolen fiat wealth to buying depreciated real assets!

    They actually think they have us coming & going!

    There is a better way – IF THE ELECTORATE IS SMART ENOUGH. We’ve been through this before, more than once.

    We desperately need people to look OUTSIDE their narrow professions, at full, not just local, context.

    We need a war on:
    monopoly banking fees & practices, &
    immunity from prosecution, &
    NOT on banking in general or on publicly owned fiat currency [that’s what the parasites WANT; they had it even better on a gold std].

    The last great depression we had, & every one prior to that, was while ON a gold std, where gold-hoarding plutocrats could & did constrain public options at will. The biggest scam of all is hoarding public context-awareness.

    The fix gets more subtle yearly, and we better wise up fast, because nuance DOES matter.

    • John Jay September 15, 2011, 5:57 pm

      Roger,
      Don’t forget 850 billion in HELOC, 2nd mortgage debt etc. If the first mortgage is worthless, all the other subordinate debt is double secret worthless.
      Guess who gets stuck with another 850 billion to match the Student Loan debt? Oh well, at least that attorney out here that was helping his foreclosed clients break into and re-occupy properties has been found guilty. There will be no poaching of deer in the King’s forest! Bloody peasants! Foreclosures have a lot of catching up to do. Then, all the REO you and I have to pay for can be sold off en masse to REITs set up by the elites.
      Such a deal!

  • redwilldanaher September 15, 2011, 4:25 pm

    If you wondered why US equities hadn’t been slapped down even more in early Sept., look no further than the engineered short squeezes that coincide with not only the eCON headlines that Rick cites but also with the a script and timeline written by TPTB well in advance. Look at the CB coordination announced today with respect to the US Ethereal. They didn’t wake up and execute that on a whim and thus all of their friends in the PPT club knew of it certainly by last week if not well prior. Your odds are much better with roulette if you evaluate the market’s prospects on the surface level of short term fundamentals.

    • falling September 15, 2011, 9:52 pm

      Yeah, exactly. Well said.

      “There are no markets anymore. Just interventions.” Chris Powell.

      And the insiders know what those interventions will be. That’s very nice for the insiders

  • 1937 and 2011 Dji Charts Comparison September 15, 2011, 2:33 pm

    Prechter’s people (EWI) have identified a NEAR EXACT pattern, between the Dji’s current chart, and the 1937-1938 Dji chart.

    The visually near-perfect comparison (of EW 5 waves) starts at the March 1937 top, vs. the May 2011 top—and they can almost be overlayed over each other, since the comparisons additionally also have, both time period and seasonal near-exact similarities (both initial tops are in spring, both EW2 tops around mid-summer, with EW3 bottoms slightly different—2011 entering fall, 1937 exiting it).

    Only difference I saw, was that July 2011 had a double peak top (EW 2), while August 1937 had a single peak top. Other than that, they are nearly identical, even down to the current, violently zig-zagging daily movements (but, the 2011 chart appears to be resolving itself even faster than the 1937 chart, so it’s zig-zagging conclusion (IMO), should be occur within 2011, while in the past chart, it took until early 1938).

    And if you want to know how the 1937-1938 chart finally resolves itself, in early 1938 (after much further, ever contracting, zig-zagging), it takes a straight dive DOWN, for a VERY FAST, LARGE percentage loss (EW 5).

    I am interested in reading all commentary on this comparison, especially regarding the timing of this potential (EW5) fast dive downward. And if anyone has a different interpretation of this 2-chart comparison, I want to read that also.

    http://www.elliottwave.com/freeupdates/archives/2011/09/07/Is-This-1937-1938-Market-Chart-a-Big-Clue-About-2011-2012.aspx?utm_source=CG&utm_campaign=slider&utm_medium=simg

    • Rick Ackerman September 15, 2011, 8:00 pm

      Although I appreciate your diligence, in my thirty-five years of forecasting and trading, I’ve yet to see a 1920s/30s chart comparison play out as advertised. I’d go as far as to say that once any similarity between price action then and price action now has been noticed publicly, the comparison is all but certain to be invalidated. (Is Heisenberg’s Uncertainty Principle at work in the markets?) Perhaps that is what is occurring at this very moment, since, according to my forecast, the Dow has a chance to extend its already 562-point rally by another 240 points. Will Prechter’s zig-by-zag comparison withstand an 800-pointer? With the markets as volatile as they’ve been, yesterday’s forecast — or observation — can become old news in mere hours.

    • TKO September 16, 2011, 1:32 am

      Elliot wavepatterns would constantly repeat themselves in similar patterns if all variables remained equal over time, and of course they don’t. The 1936 through 1938 time frame saw a vicious civil war in Spain, militaristic Japanese conquests in the Far East, the survival and strengthening of the Communist Russian behemoth, and the rise of National Socialism in a threatening German State, among other disconcerting events. A casual observer would have detected the drift towards a second major war and this was certainly reflected in the stock market at the time. IMHO wave patterns are bullish at this time, having completed a typical ABC correction beginning in 2000 and in the process of ending.

    • 1937 and 2011 Dji Charts Comparison September 16, 2011, 6:58 pm

      @RA, To answer your question about the EW zigzag pattern, the rule is that it must be CONTRACTING (in order to be a valid EW pattern); therefore, the current dji rally MUST turn back down very soon (establishing the 5th and final count), quite a bit before 11,613.5 the August 31 top), in order for it to remain their primary, highest probability interpretation.

      And, after this final zigzag ‘E’ 5th count is established (A-B-C-D-E counted), the fast sudden persistent drop, should start very quickly—in no more than a matter of days.

      See the enclosed short video link, to visualize better, what i am about to write below, on how I see the current 5-step (contracting zig-zag) evolving:

      A – 11,483 top aug. 15
      B – 10,817 bot. aug. 19
      C – 11,613 top aug. 31
      D – 10,992 bot. sep. 9
      E – ?? (IMO, a less than 11,6oo CLOSE, for EW contracting triangle interpretation to remain valid)

      Ergo, it is already POSSIBLE, that yesterday’s close at 11,433, was the final E top. However, IF it wasn’t, then, it can’t ever CLOSE, any higher than 11,600 (and current rally could drag on a few more days, yet weakly.

      Note: As far as I know, ONLY closing prices are used for EW chart long-term labeling (even though intraday spikes are used for daily analysis, yet not for long-term charting).

      Therefore, your prediction of an extension of the current rally, for an extra 240 points (on top of yesterday 11, 433 close), is still possible, however, ONLY as an intra-day move, because 11,433 plus 240 is 11,673, and that CLOSE would totally invalidate the ‘contrating triangle’ as the highest probability result (and turn it into something else, probably TOTALLY different).

      Btw, I am not a current EWT subscriber (nor yours), so I am not divulging propietary information herein—I am solely basing my opinion on interpolated information from their dozens of ‘free updates, and on my prior understanding of EWT.

      As an example, below is a short video link, of a chart study by C. Carolan (EW head of AsianPacific charting), explaining the ‘contracting triangle’ (which is a 5 step contracting zigzag sideways pattern), resulting in a burst breakout (his chart is for gold vs. the aussie dollar), and, as he predicted in early 2011, gold broke out strongly, out of the contracting zigzag triangle.

      (However, regarding the dji right now, the triangle is INVERSE, so, the sudden big breakout, will be DOWNward).

      http://www.elliottwave.com/freeupdates/archives/2011/09/07/Video-The-Contracting-Triangle-See-Its-Real-Time-Power-in-Asian-Pacific-Markets.aspx

  • charles September 15, 2011, 1:28 pm

    How true,Rick! And what could be more convincing that the “fix” is in! Our only chance is to follow the “A,B,C,D’s” as your pivots suggest. And may the “Universe” bless us, everyone!
    You too, Ron Paul!