The corrective trend is still in place, and we expect one more final wave down, perhaps a move lower than the August lows, which will serve to drive out the last of the ardent bulls and provide the backdrop for much higher prices. Fear levels are rising which is a healthy sign.
Here are some of the comments we have made over the past few weeks that highlight how we stood against the experts in stating that the current correction is nothing but a buying opportunity and not the end of the world.
The latest reading pushed this index into the all-time new high territory, and as we stated at the beginning of this update, 2016 is going to redefine the meaning of the word volatility. Market update Jan 2, 2016
We were not kidding when we stated 2016 would redefine the meaning of the word volatility; we just did not expect it to occur on the 1st trading day of the year. However, it did, and it goes to show how accurate this indicator really is. It was one of the sixth worst opening days for the SPX. Has everything changed now, should we listen to the doomsayers and naysayers who are definitely going to crawl out of the woodwork and scream the world is over? If you want to do that you can, but that would not be the smart thing to do. Read this article which was published years ago, and sit and watch how similar articles will now appear all over the place.
The high point may have been the opening bell, subsequent two minutes of silence and a singing of “God Bless America.” Immediately after the last note faded, traders pushed blue chips down dramatically and the blue chip index never recovered. Even an emergency half-point interest rate cut was brushed off by traders.
The Dow Jones industrial average closed down around 684.81 points at 8,920.70/ Full Story
If you change the date the story lines are the same; the only difference being that when the article above was written the Dow as trading slightly below 9,000. The world did not end then. Instead, we find that the Dow is roughly trading 100% higher.
As we stated 2016 will redefine the meaning of the word volatility. The action is not going to be one-sided; expect wild swings in both directions. Hence, the Dow could easily reverse course and soar 600-1000 points in one week.
Regarding the Fed, they have made a big mistake in raising rates. As usual, they did the worst thing possible and the worst time. They backed themselves into a corner and had to raise rates to save face. Remember what we stated, that regardless of whether rates were raised or not, the Fed would find some excuse to come out with another stimulus. We still believe they will be forced to take this path. They can stimulate the market in one of two ways
- Another QE program
- Or suddenly lower rates to push more hot money into the markets, which as good as QE.
The Credit markets are still frozen to the average Joe. But we stated that the banks would start flooding customers with 0% balance transfers almost 12 months before the first offer appeared. At the time we made the statement, it seemed insane. The banks will find a way to provide easy money to the average Joe again. The 0% balance transfers were the first wave, but to create a massive bubble you need to provide even larger sums of money. Subprime mortgages are slowly making a comeback. We are not sure of what mechanism they will use to get this money out, but they will come out with a nefarious plan, and that could end up pushing the Dow to insane heights. We will explore this in a future update.
Now back to the Fed, it has raised rates when things are actually slowing down, so they raised it in the worst part of the business cycle. This low rate environment has given companies that should have gone belly up a new lease on life, and now higher rates will start to push them one step closer to the grave. The Fed will have no option but to backtrack on its rate hiking stance, sooner than later. Remember the mistake Europe made, they raised rates years ago when the US was lowering rates, and then their recovering economy sputtered and collapsed; now they are mum on the subject of rate hikes. We are in the devalue or die era, and you do not raise rates when your currency is one of the strongest in the world.
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