Week ending 04/15/2011 - The Dow experiences a negative week. I demand to know the whereabouts of one Ben Bernanke! He can’t let this go on. After all - it is his index. Actually, his underlings have been feuding this week. Dallas Fed Head Fisher ended the previous week by chirping (a week ago Friday) that the Fed had already done too much stimulating and QE2 should be ending early with no QE3 reprisal. Knowing full well that Fed stimulating was the only thing driving the markets, little wonder the markets fell. Sure enough, first thing Monday morning, Fed Head Yellen came out of the shoot with an opposite opinion. She was followed by several other Fed Heads that reassured the market participants that the Fed was still on board with stimulation and zero percent interest rates. Besides, once gasoline, groceries, metals, commodities, and everything that we consume gets stripped out of the inflation survey, there really isn’t any inflation. That gives the Fed liberty to prime the pump with stimulus and free money to the bankers.
Our Congress, meanwhile, agreed on a fiscal budget finally. They cut out $38 billion in spending. Well, actually when the budget was dipped in truth serum the cut was only about $20 billion. Actually, when the budget cut was dipped in truth serum and exposed to a very bright light, it wasn’t really a cut at all. The federal government is going to spend more money in 2011 than in 2010. The beast is just not going to spend as much as originally proposed. Gee whiz! Why can’t anyone just tell the frickin’ truth these days! Anyway, we have a budget in place. Big deal. It still puts us another $1.5 trillion deeper in a whole from which we will never escape.
The key this week was the Fed sending out mouth-pieces to talk up the stock market. All the data confirms the story of the economic recovery. But like inflation, the recovery can be sold as long as the seller doesn’t include the unemployed that can’t find employment, housing starts that are quitting, productivity gains that are driven by unproductive wage freezes, corporate earnings that are driven by derivative gains that are unearned, and commodity price increases that are not really increases because the Fed has deemed them ‘transitory’. Somehow, the stock rally must continue. If it doesn’t, the Fed will have a somewhat more difficult time in their wealth confiscation operation.
The chart below is the Dow Jones Industrial Average over the past six years. the blue line is the neckline of the bearish head and shoulders pattern that forewarned of the plunge from Dow 14,000 to 7,000. Now, we are back to the neckline. I think the point is very simple. The trend is struggling a bit to break through the neckline of the old head and shoulders. That is completely understandable. Once we break through, I believe we will see the Dow assault the old highs of 14,000. The assault is waiting on something. Perhaps it is waiting on QE3 from the Fed. All we need is a little announcement or a nod of the head. Perhaps Ben could just put his finger on the side of his nose like Kris Kringle and give us a wink. The Fed has to be a complete idiot to believe their own mirror or drink their own Cool-Aid. There is no recovery. The market and the economy have simply responded to tens of trillions of dollars pumped into the system by central banks throughout the world. Pull those dollars away and down she goes. The flip side to the blue line on the chart is if we suddenly develop a down trend at this point, we have absolute confirmation that the head and shoulders is still choking the market with a bear claw. However, I believe we will break through to the upside. All we need is a little fairy dust from Ben. And of course, they need to shut that Fisher fellow up. Come on, fella. We are waiting!
DJIA - 6 years
Chart courtesy StockCharts.com
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