Use access key #2 to skip to page content.

RVAspeculator (30.73)

15,542 Dow and 1687 S&P – Today’s level is the market top - WITHOUT INCREASED QE.

Recs

31

May 22, 2013 – Comments (24) | RELATED TICKERS: SPY

 

I had not written a blog since April 5th 2012.   The last blog entry I wrote was “the only chart that matters” which showed that while QE was going on the market went straight up and when it stopped the market went straight down.  That was interesting at the time as they were TALKING about ending QE at this time in the coming months…   Soon after that blog post QE-infinity (#1) was announced (40 billion per month in Mortgage backed securities)… the market decided that ONLY 40 billion a month was not enough and into November 2012 the market was heading lower again.   That was when QE-infinity (#2) was announced…  This was an additional 45 billion worth of treasuries on top of the 40 billion on MBS taking us to a whopping 85 billion in QE every single month automatically without an end date.

Since QE-infinity (#2) in November the stock market has never seen such a run.  There has not been a single 3-day pullback.  There has not been a single 5% pullback.  In fact the S&P went from 1,343 when QE-infinity (#2) was announced all the way to 1687 today without as much as a single hiccup!  That’s greater than a 25% rise in the market in just 6 months’ time with zero pullbacks, zero fear and just drifting higher day after day on 85 billion in liquidity looking for SOMEWHERE to go.  I’ve looked back in time and have struggled to find any time in the stock market’s history where such a run occurred without a single pullback aside from the internet bubble in 1999.

I think things may be changing now though.  First off the Fed’s balance sheet will be over 4 trillion in only 6 months’ time at the current pace of QE.   It’s hard for even the Fed appeasing CNBC folks like Steve Liesman to keep a straight face when the balance sheet of the central bank gets over 25% of the GDP of the entire country.  (4 trillion / 15 trillion)

In addition, I think even the Fed is beginning to worry about an asset bubbles at this time.   When you have junk bonds trading below 6% yield for the first time in history even someone as thick as Bernanke starts to take notice!  Dividend yielding stocks are up about 40%-50% ON AVERAGE during this run as people search for yield everywhere…. Even the most worthless, trashiest, laughable no profit stocks are going up 5% a week as all this money looks for a home.

For these reasons and because stocks have had such an epic run I think today’s S&P level of 1687 is a top but a large caveat needs to be thrown in here.   There have been many times during this 4 year bull market where I thought the market had topped out and then the Fed came out and increased the flow of QE.  In fact during this entire 4 year bull market although the talk has always been “When is the Fed going to stop QE?  Or “When is the Fed going to taper QE” if you look the actual flow of QE has been INCREASING this entire bull market.  

I believe the reason is simple… the market continues to NEED a HIGHER flow of QE in order to continue to move higher.  The analogy of a drug addict is true.  This is still true today which is why I believe today you just saw at least a short term top.    Let’s see if the Fed is ready to increase the flow of QE again over the coming months.  If they are willing to increase the flow of QE then the market can blow right through S&P 1687 and the 4 year stock bonanza continues.   If they do not things could get ugly pretty quickly.  The Fed has amazed me on the amount of risk they have been willing to take in the past to keep this rally going, let’s see if they can do it again.

 

24 Comments – Post Your Own

#1) On May 22, 2013 at 4:31 PM, L0RDZ (83.35) wrote:

RV aren't you just a silly bear who got the market wrong and now  after  a  reversal  day  you  decided to  crawl back  from  wherever  you  ran  off  to  after  getting it  wrong  for how long now ?

The  Fed  isn't  concerned   about  any  bubbles,  they  love  bubbles.

If you  think  this is the top...  you're probably  wrong  yet again ?

If  the  market  is  addicted  to  QE....   oh  what a  drug  it  is.... 

You  wake up the next day  and  waa  laa  the market  is  good...

No  paranoia  or  psychotic  after  effects.

The  gov-ment  isn't  about to stop it now...  heck  they might  even up  the  dosage  with todays  slight  correction  ~  of course  you  didn't mention  this  monday holiday coming up...  the markets  are always a  little  squirrelly  around  days  off.

Rest assurred  when  the  market  comes  back (after memorial day)  there will be plenty of  nuts to  fill up all the squirrel  bellies.

Than of  course  put together 3  days like today and  you might get people  selling out  thinking  they'll take  the summer off.

As  they say  in  GoT 

The night is  dark  and  full  of  terrors...

Only the Lord of  light  can  postpone  death.

 

 

Report this comment
#2) On May 22, 2013 at 5:17 PM, RVAspeculator (30.73) wrote:

Hi Lordz....   I am the silly bear that sold my 401K about 6 months before the peak in 2007 and shorted the living hell out of everything till 2009 then flipped and went long from the lows below 700 all the way till S&P > 1000.

I have been not long or short the market since 2011...  just a observer now and admittedly I have missed great deal of this rally.   I have been generally bearish in my views but not dumb enough to jump in front of the freight train that has been the stock market.

If you read my post you see that I agree with you…  I’m only conditionally calling the top based on the Fed NOT increasing the level of QE.   So far at each turn the Fed has been willing to increase the amount of QE to keep the rally going and maybe they will do just that.  

 

I am just pointing out that I believe we reached an inflection point in which the current level of QE will drive the stock market no higher…  We shall see if this is correct or not.  

I'm glad someone is still reading these blogs out on this CAPS platform!

Report this comment
#3) On May 22, 2013 at 8:31 PM, jiltin (24.98) wrote:

RVAspeculator,

Excellent summary. I am very new (three months) to this blog and benefitted some 20% jump due to this rally.

I do think so. QE pulling is right decision to bring the economy healthy.

At 10:30 AM PST, when I came to know the QE statement, I was thinking the same "Today’s level is the market top". I have seen 2000 and 2008 as spectator and this year invested money.

At 11 am, whether market goes up or not, I pulled all my investment and gone to caves to hide it!!

 

 

Report this comment
#4) On May 22, 2013 at 8:39 PM, dragonLZ (99.70) wrote:

RVA, back in 2010 in your post SELL CONFIRMATION on the 20/50 weekly at last. you said we just entered a new bear market (that was almost 3 years ago): " As of yesterday we finally have sell confirmation on the 20/50 weekly indicator on the S&P.

This means this indicator has issued a LONG TERM sell signal on the S&P...  This is the power of sitting out bear markets! 

According to this indicator we just entered a new one yesterday. "

 

Also, today you say: "...till 2009 then flipped and went long from the lows below 700 all the way till S&P > 1000." , but in September of 2009 (in your post Will sanity finally be making a return), you said that you went agressivly short at 888: 

"Unlike the other internet folks though I can be honest on how wrong I had this market because I have nothing to sell you and no agenda...  I started dumping longs at 850 and got aggressively short at 888.   We went higher at first, then back below 900 and when we broke back above 900 I covered everything and went 100% cash as posted here in my last post in early July.  I thought I was covering the at THE top selling FAZ in the 5’s  (before the 10-1 reverse split) and SRS around $20, not to mention all the put positions…  Thank god I did what I did….Had I been stubborn and NOT covered I would seriously be broke at this point. (with the money I traded with at least)

Brings me back to a saying I have heard many times…  “Its not how many times you are right or wrong its how long you STAY wrong.” 

 

Report this comment
#5) On May 22, 2013 at 8:53 PM, dragonLZ (99.70) wrote:

In your post from April of 2009 Nearing the end of the current bear market rally, BUT…., you said you also were shorting the market at that point (and got out of your longs):

"Background
 When this whole rally started in the 600’s I bought in with both feet.  I loaded up on Citigroup, UYG, GE, SSO, Alcoa, TAN, DXO and I sold all my gold and silver miners near the peak after the Fed announcement of Quantitative Easing at GDX = $38 a share..  I even put 100% of my 401K in the market near the lows.

Well I finally have gotten rid of all my longs except for a few I sold in the money covered calls on for April that will probably get called away from me.  I even have dipped my toe into shorting the last few days but I have kept it VERY small and actually have been stopped out for now as the “animal spirits” are really in the equity markets right now.

That being said we are nearing the end of this bear market rally.   I am not smart enough to tell you if it is today at 856 on the S&P.  I am always early on predicting market moves and luckily I have adjusted my trading to fit my “always early” timing."

Report this comment
#6) On May 22, 2013 at 9:06 PM, RVAspeculator (30.73) wrote:

DragonZ....  You are correct...   I did short for a brief period around S&P 888-1000 and lost all the profits I made (only in my trading account) shorting the market on the way down..  All the Lehman brothers put money went kapoof and I had at least 100 puts when it went to zero… 

The 20/50 sell confirmation actually flipped back to a buy signal about 2 months after I posted that blog post if you look at it…  which is when I realized it was the first false signal on that indicator in many years and I had to cover my shorts.  That also conensided with the largest QE in history and I think any technical sell signal is trumped by 600 billion dollars shoveled into the market.

I agree with you 100% with  “Its not how many times you are right or wrong its how long you STAY wrong.”  which is why I did not stay wrong…    Unless you count not participating in a great deal of this rally in my investment accoutns as "being wrong".

 

What is your current opinion on the state of the market?  Do you agree with my assertion that the increasing amount of Fed QE is fueling the rally and that if the QE does not continue to increase the market cannot go higher or do you disagree?

Report this comment
#7) On May 22, 2013 at 9:07 PM, jiltin (24.98) wrote:

dragonLZ,

FED was telling many times QE pull back before this dec 2013 and likely interest rate hike by dec 2014.

So far, other Governors voted against QE, but this time it is Ben Bernanke informed to Capitol Hill. It means sometime near future, within next 3 months, they are going to pull out QE.  Stock market is always six months ahead.

If they clearly know QE will be pulled, do you think the bull market continue?

I firmly believe today is the peak for 2013. I may be rigtht or wrong. If I am wrong, I lose lot of gains permanently as I pulled all my stocks and mutual funds.  

 

 

Report this comment
#8) On May 22, 2013 at 9:18 PM, RVAspeculator (30.73) wrote:

Jiltin,

Like I was saying in my blog...  If the Fed expands QE farther we will go higher.   One thing I have learned during this 4 years is Benny does not seem to care about an "exit strategy".  I believe his "exit strategy" is to die or retire.   I just don't know if the political will still exists to expand or launch yet ANOTHER QE program at this point.   Maybe they will prove me wrong.

Report this comment
#9) On May 22, 2013 at 9:49 PM, dragonLZ (99.70) wrote:

"What is your current opinion on the state of the market?  Do you agree with my assertion that the increasing amount of Fed QE is fueling the rally and that if the QE does not continue to increase the market cannot go higher or do you disagree?"

"If they clearly know QE will be pulled, do you think the bull market continue?

RVA and Jiltin, you are basically asking the same question, and my answer to both of you is I really don't know what to think. I never thought the QE "caused" this bull market in the first place so what will happen when QE ends I have no idea.

Being a bull and 90% invested (was 100% until yesterday when I got stopped out of one stock I got into in 2011), I would lie if I said I'm not concerned about what will happen when the QE ends. At this point I'm thinking I'll let the market tell me what the answer is when we get there, but I also do realize that there is a big chance I either won't listen to it or be able to hear it... 

Report this comment
#10) On May 22, 2013 at 10:15 PM, RVAspeculator (30.73) wrote:

DragonLZ, 

Thanks for your honest answer.  I believe most people are in your camp. 

Personally I believe 3.6 trillion dollars poured into treasuries and risky mortgage paper has had a GREAT DEAL to do with the recovery and I think we are living through a "great experiment" that no one has ever seen before.  Remember when this whole mess started  in 2008 we only had 9 trillion of total debt and now the Fed alone has “invested” almost 4 trillion?  (and debt has risen to 17 trillion)

I think if you get a chart and look at exactly when the QE’s are occurring and what the market is doing it is pretty clear.   Look at my last blog post in 2012 for an example of this.  I should find an updated version as it would show the same thing.

You have been right to stay long, that’s for sure.   I was wrong to sell also… 

The way I looked at it is I missed almost all of the downside with my 401k and caught a quick 40% up move in just a couple of months so I got the hell out of dodge.   If you just stayed long the whole period from the year 2000 till now the market is only up from S&P 1,553 to S&P 1655 today…  So it’s up 6% in 13 years.  I am up well over 100% in my 401K during the same period just by missing in the decline in 2008-2009 and catching a small portion of this Fed orgy.

The point of this post is not past performance though…  it is that I truly believe the Fed needs to keep it’s foot on the pedal to keep this thing going now.   So far the monthly rate of what they are printing has consistently risen the entire bull market.   A question I ask my bullish friends is if the Fed doesn’t matter then why for 4 straight years have they had to continually increase the flow of QE, even when we are in a “recovery”?

If you would have told me in 2009 that in 2013 we would be up to buying 40 billion in MBS and 45 billion in treasuries every single month without even having to announce it as a “QE” and the Fed would be buying the ENTIRE yearly net issuance of the bond market I would have said “I bet the market S&P is at 2000”…  Actually I would have also thought gold would be about $5000 in that scenario too but that is a different post…  :)

Anyways… sorry for the novel.  Should be an interesting next few months either way…  

Report this comment
#11) On May 23, 2013 at 1:25 AM, Valyooo (99.60) wrote:

I think QE has a lot, if not everything, to do with the rally from 2009.  I just don't see why stopping it would cause a bear market.  I see QE kind of like refilling an empty gas tank.....it moves the car significantly ahead...but when it runs out of gas again, it doesnt shoot into reverse and backup all the distance it covered....it just stalls out and stays put

Report this comment
#12) On May 23, 2013 at 9:11 AM, RVAspeculator (30.73) wrote:

Valyooo,

 

I think the one point some people miss is that if no QE is going on it IS defacto tightening.  Just the passage of time makes the Fed balance sheet shrink as bonds mature.   I realize this affect has been lowered by Operation Twist #1 and #2 extending the duration of the bonds a great deal but the effect still exists.   If just a year passed without QE the Fed balance sheet would shrink substantially which would be defacto tightening.

Glad to see you still on here too.   CAPS still exists! 

Report this comment
#13) On May 23, 2013 at 10:42 AM, jiltin (24.98) wrote:

Most of these you may know. I will put my view points on QE. Pre-2008, foreign banks/investors supported all US related securities including real estate securities that funded home purchased. 2008 subprime resulted billions of loss for foreign investors as many foreclosures including AIG foreclosure (very important). Thereafter no foreign investors ready to fund real estate related securities and no US bank ready to provide loan or refinance home. Prices dropped even after FED reduced interest rate. Banks did not even reduce rate and did not provide any loans as their defaults rates were increasing. Some People were ready to buy real estate, but no loans, no funding and RE becomes standstill even after FED reduced the short term rate to near zero. Fannie Mae, Freddie Mac dysfunctional.

At that time, FED started QE to revive the real estate or lending economy. Banks got funding and whenever they pulled bank stopped lending and this had made multiple QEs. Real estate is back on track that puts lot of confidence; prices came back to pre-2008 across country, jobless rate reduced. The real estate QE is almost 4 Trillion dollars pumped in as QE.

Now, QE reduced, economy has the similar side effect as real estate funding is limited. IMO, even though FED pulls QE that is needed for this country. Market has to find other resources for real estate funding rather than QE from government printing which results.  Hence, QE as of now directly related to economy. The QE funding should be slowed down gradually until Dec 2014, but cannot be stopped overnight. If things are working, then FED short term rates can be changed.

 

Report this comment
#14) On May 23, 2013 at 6:39 PM, jiltin (24.98) wrote:

Of course, IMO, tapering QE is good for economy long term

Report this comment
#15) On June 06, 2013 at 12:00 AM, jiltin (24.98) wrote:

Proved right, beyond doubt. Kudos !

Report this comment
#16) On June 20, 2013 at 12:29 PM, jiltin (24.98) wrote:

RVA,

Reg "I believe his "exit strategy" is to die or retire", I doubt. FED is making computerized analysis/simulation with real banks' data for the past four years. Unlike previous regimes, now some scientific analysis is going on to make sure they survive and work as predicted. 

FED SIMULATION 

FED RESULTS 

 

 

 

Report this comment
#17) On June 20, 2013 at 2:54 PM, Lulupoopsalot (93.48) wrote:

The verdict is in.....excellent call.

Report this comment
#18) On June 20, 2013 at 3:20 PM, dragonLZ (99.70) wrote:

Excellent call, how?

It's only a month later and the market is down how much?

If you think it is an excellent call based on what you think it's going to happen from now on, then OK (it's your opinion / prediction of the future so you might end up being right, you might end up being wrong).

If you are calling it an excellent call just because market went down a few percent, then I guess it's very easy to get an "excellent call" from you. 

p.s.

To make this clearer, let's say after the market drops some more tomorrow, but next week starts a powerful rally and Dow soon gets to 16,500, are you still consider this an excellent call?

Report this comment
#19) On August 01, 2013 at 8:43 AM, jiltin (24.98) wrote:

Just for record purpose, July 31, 2013, this reached back the new level dow=15634.81 and s&p=1698.38.

But, no major newspapers were ahppy or excited about the new peak ! 

Report this comment
#20) On August 01, 2013 at 10:19 AM, dragonLZ (99.70) wrote:

#17) On June 20, 2013 at 2:54 PM, Lulupoopsalot (91.81) wrote:

The verdict is in.....excellent call.

 

Still think so?

Report this comment
#21) On August 02, 2013 at 11:50 PM, RVAspeculator (30.73) wrote:

2.5 months later and the Dow is now whopping 100 points higher than my post in mid-May.  

And that was AFTER a quick 10% decline when Benny even MENTIONED the word "taper" (the day of my post)

He had to back off of the taper to get that 10% back….  And now we are back to where we started.

Meh...  I still think the market needs more QE to keep going.    Just keeping the 85 billion a month running forever isn’t going to do it in my opinion.

 

Hey, at least NO ONE is arguing this isn’t all 100% QE based anymore.   That's one positive.   Even the talking heads on CNBC say "QE" every 5 minutes or so.

Report this comment
#22) On August 03, 2013 at 12:16 AM, RVAspeculator (30.73) wrote:

I just re-read my above comment where I said "Just the 85 billion a month forever is not going to do it".

Isn’t this a microchasim of how far we have come?

To think the panama canal took 30 years to build and cost 15 billion dollars (in 2013 dollars).  And we are creating over 5 times this EVERY SINGLE MONTH just for a bull market? 

 

I am arguing that it is not enough?  Maybe I AM crazy!   :)

 

Report this comment
#23) On August 06, 2013 at 9:46 PM, RVAspeculator (30.73) wrote:

Was that 100 point overthrow on the Dow from the May high really all we are going to get? 

Report this comment
#24) On November 15, 2013 at 6:22 PM, dragonLZ (99.70) wrote:

I guess not...

Report this comment

Featured Broker Partners


Advertisement