Wall Street’s Wilding Spree Leads…Nowhere

Business reporters are obliged to furnish a reason for exceptionally powerful rallies such as we saw on Friday, but it would be absurd to accept at face value the official narrative that it was driven by investors’ growing confidence the Fed will raise interest rates in two weeks.  It was a violent short-squeeze, plain and simple, and it made clearer than ever that the only thing pushing stocks higher these days is the urgent buying of bears covering short positions gone painfully awry.

If the seemingly inevitable rate hike is in fact still dominating the fevered brains of investors (aka ‘speculators’), their chief concern at this point should be: What might the Fed do next? For it is inconceivable that the central bank will do much more actual tightening, since there are already fears, well warranted, that the 25-basis-point hike everyone seems so sure of could set in motion a U.S. recession and a global crash. If the Fed’s job is to ‘manage expectations,’ however clumsily and disingenuously, Yellen & Co. are going to have their hands full trying to manage them once the first, and presumably last, rate hike takes effect later this month.

Under the circumstances, we will continue to look for opportunities to get short at promising ‘Hidden Pivot’ rally targets.  We did so last Wednesday, and even though the Dow rallied nearly 400 points on Friday, subscribers were able to lock in very substantial gains from the previous day’s decline just before before stocks took off. We remain strongly convinced that the stock market is in a broad topping pattern. The main reason the swings have been so violent is because there are obviously more than a few bears aggressively betting on a crash. As long as they continue to do so, blitzkrieg rallies like Friday’s will continue to happen. They will draw encouragement from the widely accepted idea that the central banks of the world will do everything in their power to keep stocks rising. As persuasive as this notion may seem, history leaves no doubt that the party must end — and in such a way that will take bulls violently by surprise.