The winning streak for stocks broke yesterday, with stocks posting a small drop (just 0.3%). We had forecast a summer rally a few weeks back and sure enough stocks have put in a 10-day winning streak.
The important line to watch is lined out below. Bernanke’s verbal intervention managed to kick off a rally when he spoke after the market was closed on Wednesday. But if we drop back below this line again, there’s not a whole lot he can do, after all, he’s promised to maintain QE… which he already had in place.
The single biggest problem occurring today is that the economy is receding sharply while stocks continue to rally hard. The consumer is the economy in the US. And real average hourly wages adjusted for inflation today are still below June 2009 levels.
So, we have a jobless recovery (the unemployment ratio hasn’t budged) an income-less recovery (real hourly wages remain below June 2009 levels), and the yet somehow we have a “recovery” that will result in GDP taking off any day now?
Sounds a bit like 2007-2008 doesn’t it?
Stocks may hit new highs, but this rally has all the hallmarks of a blow off top, coming at the final stage of a bubble. Indeed, stocks have not been this overextended in over 20 years… that includes the 2007 peak. Soon after we reached that point… we then plunged into one of the worst market Crashes of all time.
By today’s metrics, this would mean the S&P 500 falling to 1,300 then eventually plummeting to new lows.
This is not doom and gloom. This is a fact. The Fed has created an even bigger bubble than the 2007 one.
The time to prepare for this is not once the collapse begins, but NOW, while stocks are still rallying. Stocks take their time moving up, but when they crash it happens VERY quickly.
To read more, check out Graham Summers – Gains, Pains & Capital