Sunday, September 7, 2014

Bears Can't Catch a Break

After falling sharply on Thursday, the S&P 500 did what it always seems to do, reverse back up and attack the highs.  For the week US equity indices advanced only slightly, 0.01 - 0.02 percent but the chart shows two days with lower lows for the day.  Might a downtrend be starting?

Notice the indicator at the bottom of the chart, a Stochastics measurement.  It is beginning to go down, generally a precursor to lower price movement.  Other indicators I observe are similarly reversing to the downside communicating that the upside momentum is waning.

Yet virtually every selloff of magnitude is immediately met with continual buying, driving prices to new highs.

It doesn't matter what the news has been, no news is powerful enough to slow the institutional money driving the market.  There are many possible reasons for this.  A key underlying factor is virtually free money that can be put in the market for seemingly, a guaranteed return.  Central Banks, such as the Federal Reserve Bank have reportedly purchased some $29 trillion of equities. 

Corporations themselves have been taking advantage of cheap money by offering debt to the public and using the cash received to buy back their shares, reducing the number of shares outstanding and thus boosting the earnings per share regardless of whether the company has actually improved or not.  Less shares outstanding means more earnings per share.  Period. 

Computers are also programmed to be working their magic.  The best and brightest engineers are now working for high frequency trading companies now instead of finding cures for cancer or designing rockets to reach Mars.  Big money on Wall Street is pulling in some of the country's best resources.

One has to believe though that eventually the market will go down.  I expect this decline to occur now.  All the indicators are softening and it's hard to think that the market can go higher when statistical information shows such weakening. 

BUT, what would cause institutions to sell?  They are programmed NOT TO SELL.  Wall Street's sell side has been virtually put out of business.  As a result, volume is dreadfully light with only surges of activating happening at the open and during the last minute or two of New York trading.


Some Elliott Wave technicians I have been following had been projecting a high on the SPX at 2011 to 2019.  Last week's news that Europe will now begin printing money, even as the US winds down it's money printing program, has led them to believe that the market still has a way to go on the upside before finally experiencing a correction.  Some even contend that the rally can continue on for at least another year, without end.  I suspect that it is possible as indicators show that the market should be selling off, but it doesn't.

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