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There Are Big Holes In This Rally



September 20, 2011 – Comments (0) | RELATED TICKERS: KBW.DL , CS , X

This afternoon, the major stock indexes are trying to stage another positive close. Since September 12, 2011 the S&P 500 Index has rallied higher by over 60.0 points to close above the 1200.00 level. While the bounce has been very sharp in the major stock indexes there are still a lot of problems with this market

Traders and investors may have now realized that the financial stocks in the United States and Europe remain very weak. There is really no need to look at any other financial stock other than J.P. Morgan Chase & Co.(NYSE:JPM) to see that this sector is extremely weak at this time. What is the problem with the bank stocks in the United States? These banks get to borrow money at zero percent from the Federal Reserve while they pay you nothing for keeping money in a savings account. Why are these large financial giants struggling on the charts? The European banks look even worse. The financial stocks are a negative for the stock markets.   

Next we have the poor action in the industrial metals. Copper, steel, iron ore, and metallurgic coal continue to struggle. These sectors used to be stock market leaders, now they are laggards. Stocks such as Freeport McMoRan Copper & Gold Inc.(NYSE:FCX), Southern Copper Corp. (NYSE:SCCO), United States Steel Corp. (NYSE:X), Cliffs Natural Resources Inc.(NYSE:CLF), and others look horrible on the charts. This is not a healthy sign for the stock markets.

Has anyone looked at a chart of the Shanghai Index (China) lately? This chart is breaking down and looks terrible at this time. The Chinese markets have lead the stock markets higher for the past eight years. This country is supposed to be the growth engine of the world, meanwhile, the daily chart looks like China is in a bear market. China is supposed to be a manufacturing powerhouse, however, that market looks like it now has its own set of issues, most notably inflation.

Many traders and investors are expecting miracles out of Ben Bernanke tomorrow. The Bernank did pull an Ace out of his sleeve in September 2010 when he introduced the $600 billion QE-2 program. Will he do it again is the big question. This is something that we will not know until tomorrow. In any case, the odds are favoring  that the Bernank will have to pass on QE-3 for the time being since he just ended QE-2 on June 30, 2011. While QE-3 is unlikely we should never under estimate Chairman Bernanke since he loves to cause short squeezes in the market. The only problem for the Bernank at this time is that there are not many shorts left in this market. Tomorrow is certainly going to be an interesting day. Either way, this recent rally is filled with holes.

Nicholas Santiago

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