I said half-facetiously in early 2004 that if a small nuke detonated in Times Square that the Dow would probably shoot up 200 points. Today I reiterate that assertion with full sincerity. All of the markets, but especially the stock market, are now openly manipulated. The Fed and the Treasury never bother even to tacitly deny it.
Yesterday in our conversation with Paul Craig Roberts, Dr. Roberts rhetorically asked, “why does the Fed operate a massive and highly sophisticated trading desk in New York?” I add to that question, rhetorically of course, why does the U.S. Treasury’s Working Group On Financial Markets office in the same building as the NY Fed in NYC?
The Fed officials are back at it threatening us with interest rate hikes in April once again after weeks of bluffing before blinking at the March FOMC meeting. If these guys can’t raise rates just one quarter of one percent – if for no other reason than to avoid looking like village idiots – then the true condition of the underlying economic system must be far worse than any of us can imagine.
This rate-hike “meme” dove-tails well with Chicago Fed National Activity report released last week showing a sharp contraction in economic activity, as its index fell from +.41 to -.29 in February. It takes a lot to move the needled on that index, which means economic activity contracted precipitously during February. This was reinforced by the big plunge in existing home sales during February per the NAR yesterday.
Lewis Carroll’s imagination could not make this stuff up.
By now everyone is well aware of the fact that the S&P 500 has retraced nearly the exact path that it took after the 11.2% plunge in August (click image to enlarge):
Here’s a few interesting statistics: Through yesterday, there have been 26 trading days and only six have been down days; during the September rally there were a total of 26 trading days before the market rolled over and only eight of them were red; from the Feb 11 bottom through today (Mar 22), the SPX has rallied 12.3%; from the bottom on Aug 25 to the top on Nov 4, the SPX rallied 17.3%; as you can see from the two bottom panels in the graph, the RSI and MACD momentum indicators are as “overbought” now as they were at the top of the last plunge/spike-up rally; in both cases, the SPX has rallied back above its 200 dma (red line).
Currently the stock market is more dislocated from the underlying fundamentals of the U.S. financial, economic and political system than at any time the history of the country. While it seems that current push higher in the stock market is climbing the euphemistic “wall of worry,” at this point the current rally is less powerful than the previous move off of the September 2015 lows.
I was chatting with a prominent cycle theory analyst, Longwave Group’s Ian Gordon, who successfully forecasted the 2008 market crash in 2007. He thinks the Fed will be unable to contain the next stock market sell-off the way it was able to in September. He thinks this current move has, as most, another three months. I told him I thought the market would tip over sooner than that…
In the meantime, one has to wonder if both Fed officials – Dennis Lockhart and John Williams – have somehow been wandering around Alice’s Wonderland with their heads firmly inserted where the sun never shines.