Marvelous Monday – Back To Our Highs, Now What

What an incredible finish! 

We have retaken most of our September highs after dropping about 10% in the first two weeks of October.  Technically, it LOOKS like a strong market but Fundamentally, we know that the boost is the result of Trillions of additional stimulus from Japan and Europe and, as I mentioned on Thursday, it’s not that the US has STOPPED stimulating the economy – we’ve simply stopped INCREASING the amount of stimulus – hardly a “taper.”

So we’re watching and waiting this week, especially ahead of the election. We did a Portfolio Review over the weekend and all 5 of our Member Portfolios are looking very good into the end of the year so we don’t want to rock the boat and we angled more bearish into the weekend, just in case but, on the whole BALANCE is our goal.

As we expected, weak Chinese data (see morning notes to Members) is putting a damper of Friday’s rally already and, as you can see from our Big Chart, we’re back at levels that have proven to be harsh overhead resistance for our indices.  

We’re still waiting for the Russell and the NYSE to confirm by making their own new highs and Russell’s pop to 1,174 on Friday was so fake that we did decide to short /TF (Russell Futures) below the 1,170 line this morning – we’ll see how that goes as a fun bearish play.  

On the whole, last week’s action had the Fundamentalists throwing up their hands and simply screaming.  Soc Gen’s Albert Edwars summed it up nicely, saying:

“The amazing thing is how little interest there is with western investors about Japan and how it effects US or European portfolios

Notwithstanding the fact that it is the 3rd biggest economy in the world by a long way (the same size as Germany and France added together if you look at it the right way ie current exchange rates rather than PPP)

Little understanding out there what yen devaluation means for Chinese renmimbi and how they will be forced to devalue too.

ECB money printing will never be able to compete with Japan. The euro might be going down vs the dollar but it will be going up against the yen

Little understanding how, not only will the eurozone be going into recession and deflation but that Germany will be the weakest economy in zone. Once Germany’s budget deficit starts to rise sharply as a result of their recession the new mad balanced budget act will kick in and they will be cutting spending aggressively. Expect the eurozone to disappear down a black hole!”