Fall 2010 Review & Outlook / Spring 2010 Crisis Overview
Fall 2010 Review & Outlook
How did we get here? What do we watch now? (November 8, 2010)
To address the latter question first, the Markets editors at the Financial Times were gracious enough to publish a column of ours
on the morning of the recent US midterm election:
'Taxulationism' - why the Fed's QE2 might not succeed.
[And that scan of the print edition is linked back to the FT online version in case you find it easier to read.]
It ended as suggested in our TrendView GENERAL UPDATE back on September 17th.
After very predictable failure of Republicans to gain a majority in the Senate, contentious partisan posturing leaves little hope for mitigation of the heavy economic headwinds from taxation and regulation next year into 2012.
And the escalating international trade/currency confrontation risks protectionism on top of it: 'Taxulationism'1 prevails.
1'Taxulationism' © 2010 Alan Rohrbach & Jack Bouroudjian. All international rights reserved unless explicitly waived.
Def.: Combined impact of taxation, regulation and protectionism exercised to a negative degree as official policy.
"FT" and "Financial Times" are trademarks of the Financial Times. © Copyright The Financial Times Ltd 2010.
Increasing US QE2 prospects fed the late-summer fire...
Yet, in spite of those 'politico'-economic influences leaving quite a bit of risk in the US economic outlook, relative health elsewhere and the increasing prospect of another round of Fed quantitative easing (QE2)
created a supportive environment. Other than the US dollar (with the Fed about to create many more), there was a classical "bad news is good news" response even when economic data was weak.
From mid-September QE2 prospects encouraged Equities, Commodities, Gold and even the previously struggling Crude Oil to maintain significant rallies we suspected would be the case once bulls won the battle;
interestingly right along with the expected US government bond's QE2 bid.
...as the bullish Siamese Twin knocks off its bearish sibling
The major technical trend decision occurred as the December S&P 500 future rallied back to its summer highs in mid-September.
In a highly unique chart pattern conflict, the bulls won the Showdown at the Head & Shoulders Corral when the December S&P 500 pushed above 1,121-26.
As noted in the September 28th Weekly Overview, the violation of that resistance points to an Objective up at 1,246.
[The actual charts showing the very unique Siamese Twins confrontation are in that Monday's TrendView BRIEF UPDATE,
with topping pattern Negation above 1,126 pointing to at least a minor new S&P 500 high.]
Highly contentious late-2010 into early-2011
The market scenario rivals and is dependent upon a contentious Washington DC: a fairly modest S&P 500 new high (yet still by $30) ends up being the ultimate top? Incredible.
But don't forget Fall 2007: an accommodative Fed attempted to solve a problem outside its control, and a minor new high ended up being the top.
The first healthy sign allowing the Fed "cannot... do it alone" was Mr. Warsh's speech
(11/8/2010) on things it should have already said to Congress: It's your problem; you fix it. But will they? We shall see.
[NOTE: 12/3/2010: Things have progressed as expected so far. Equities remained very resilient into key support in spite of Euro-debt worries,
and even the weak US Employment number today could not derail the renewed S&P 500 futures strength above 1,206.
Government bonds remain under pressure after their crazy climb to unsustainable levels, and QE2 short term economic confidence has bolstered Gold and commodities.
Yet, the question is what happens in a more fraught environment (taxation, regulation and weak employment) next year after a new equities high?]
...and for those interested in a review of how we got there from early 2010...
Spring 2010 Crisis Overview: Tough Market (??!)
Early-mid 2010 markets tough? Hard to make money? Don't believe it!!
We were more than a bit surprised to hear that sentiment from the investment and trading street. As folks who developed our trend analysis approach in the 1970's, we found 2010 (and 2008 & 2009 for that matter)
the best markets we had seen for decades.
Then it began to dawn on us those managers were struggling for a reason: they were not aware of the shift back to more active trend management necessary to thrive,
as we had noted in last year's (2009) update on The "New/Old" Capital Markets Paradigm.
A brief review of our Spring 2010 Crisis Overview
shows that from March 24th into late May we began mildly negative towards the government bond markets in late March, yet turned very positive in early April. (Analysis headline on April 8th:
"Ready for the short-term Bond Boom?") On foreign exchange we had been negative the euro for quite some time. The Greek Crisis led us to anticiapte a weekly EUR/USD Close below 1.3400 would lead to an an accelerated selloff,
among other effective foreign exchange views (anticipating the potential for a sharp Aussie selloff once equities weakened enough.)
All of which was heavily reinforced by the failure of equities at the major DJIA 11,250 resistance, with subsequent violations of 11,000 area and especially 10,800 providing confirmation of the significance
of the near term trend reversal for a correction to the 10,000-9,800 area target. After late May the technical levels were still useful into the summer.
The full analysis of price and news developments at each significant trend inflection point is available via the Crisis Overview links to individual report archives.
While it is distorted to some degree by the Fed's QE2 (ubiquitous acronym for its second round quantitative easing)
and the US political discourse, the 'macro-trend' analysis still sets a context that can enhance effective trading and assist investment timing.