Market rally is ‘major bull trap,’ analyst says

[WallyWeaver]

I agree with this sentiment. Until an official announcement is made by the Fed for some type of liquidity there's not too much of a reason for the Dow to rise 1% in a day. In my opinion, the only reason it did rise today is investor's are anticipating some type of central bank intervention with all of the woeful news out of Europe (Spain, Greece, Italy, Ireland) and the US (1.9% GDP, very weak jobs numbers for the past 3 months).

Market rally is ‘major bull trap,’ analyst says

June 12, 2012, 6:14 PMStock investors are whistling past the euro-zone graveyard, pushing U.S. markets higher even as the economic headlines from Europe become more ghoulish.

The U.S. markets’ rally Wednesday was impressive, with all major indices adding more than 1%. But the gains didn’t impress Christopher Vecchio, currency analyst at DailyFX, who said a “major bull trap” is forming.

“The rally is a wolf in sheep’s clothing,” Vecchio said in a research note late Wednesday.

Pressures on global financial markets are too intense to sustain U.S. stock bulls, Vecchio added. As evidence, he noted the failure of the euro to rally beyond its pre-Spanish bailout level, along with low trading volume and “exceptionally fragile” investor sentiment ahead of what he expects will be “tumultous” elections in Greece this weekend.

Said Vecchio: “Without more stimuli coming from the major central banks — the Federal Reserve or the European Central Bank — in the near-future, it will take just a few gusts of negativity to derail the recent bull run.”

Link: http://blogs.marketwatch.com/thetell/2012/06/12/market-rally-is-major-bull-trap-analyst-says/

[carlos in san diego]

Thanks for the news WW! Your posts are very informative. I'm a follower of your posts I would like to take the opportunity to ask you a question regarding what your reading. What's your sense of timing? When is the bottom going to fall out...?

I was reading rumors yesterday that said: Obama was not going to make it till the end of his term, and that the experts predict we won't make until the elections before the bottom falls out of the economy. Other than that....everything is rosy!

I'd be interested in your views...carlos

[WallyWeaver]

Thanks for the news WW! Your posts are very informative. I'm a follower of your posts I would like to take the opportunity to ask you a question regarding what your reading. What's your sense of timing? When is the bottom going to fall out...?

I was reading rumors yesterday that said: Obama was not going to make it till the end of his term, and that the experts predict we won't make until the elections before the bottom falls out of the economy. Other than that....everything is rosy!

I'd be interested in your views...carlos

Thanks for the kind words, Carlos.

I sat down last night 3 times to write a response to your timing question and every time it ended up looking like a book. The reason is it is my opinion that it could still go either way and there are simply still too many variables to make a correct timing call at this time.

I do think we are going to need some more Fed intervention to keep things afloat at the end of this month. If the Fed does nothing than we could see a collapse before the summer is over.

But there are many things to consider here:

1. Will Obamacare be struck down by the Supreme's this month, either in part or in full?

2. What will Europe look like in 3 months?

3. Will Israel strike Iran?

4. Can the impending derivatives market collapse hold until the economy turns around, if it ever does?

5. Will both Houses of Congress become right leaning in November?

6. Will Romney win in November and work closely with the new Congress to:

a. Come up with a plan to increase US oil production to 10 million barrells per day (we are currently at just over 5 million) making America an

energy provider to the world rather than just an energy user.

b. Make sure the new Fed chief increases the key interest rates to 5 or 6%. I am not a supporter of the Fed or its policies but we need to

be weaned off slowly. Increasing rates will help to curb coming hyper-inflation.

c. Begin taking steps to abolish the EPA and its oppressive regulations thereby creating a more business friendly environment.

d. In general create an environment for businesses, both large and small, to succeed in. I work for a Fortune 500 company (top 20, actually)

and I know for a fact that my company is sitting on huge amounts of cash but is not using it because of all of the uncertainty next year

holds. If the business environment becomes condusive to growth than my company, and many others, will begin investing its capital in

growth again (jobs, company infrastructure, etc.) which will be a major boost to the economy.

Where we are at: The US is facing some huge issues with hyper-inflation on the horizon, we are rapidly approaching $16 trillion in debt, an extremely weak 1.9% GDP, a real unemployment number of over 20%, an impending derivative market collapse, a housing bubble that still has not ended, etc.

Here's something I know about financing, though: nothing fixes serious economic issues like increased revenue. I do believe that if the wheels to the largest economy on earth can start turning again than disaster can be averted. What if we do start focusing on domestic energy (picture the entire US becoming South Dakota) and unemployment drops down to 4%? What if US businesses pull their capital off the sidelines and put it back towards growth? Heck, it is well known that Romney and Dr. Paul have become friends on the campaign trail. They have even gotten their families together on several occassions. And now Rand Paul, someone I very much admire, has endorsed Romney. What if Romney starts working with Paul to end the Fed? Does that sound crazy? Stranger things have happened. I have to admit that there is something going on between Romney and the Paul's that I think will benefit the country. But maybe that's just me. Definitely something to watch...

...

I guess my point is, again, it's really too difficult to say at this time how it will go down and when it will take place (too many variables).

I don't think the Fed will have any choice about some type of intervention, and soon. If they do it than gold hits $3000/ oz. in the next 2 years. But I still think we have 2 to 5 years before melt down if they do do it. But, again, if the economy gets back on its feet than there may not be a melt down. If the Fed doesn't intervene we won't make it to the Presidenial election. I say that because the US economic data keeps getting weaker and weaker, as does Europe's. If the banks don't keep everything afloat and the derivatives markets crashes it's over.....

If Obama wins re-election 2 to 5 years to collapse, guaranteed. If Romney wins, it's possible we could still get out of it or at least delay collapse for another decade.

But again, we could go over scenario after scenario, the variables are almost endless.

I'm sure that was clear as mud..... Fed intervention this month and 2 to 5 years to collapse, maybe, if Romney and a right leaning Congress win and follow the status quo, accomplishing nothing of value.... Fed intervention this month and Obama wins than 2 to 5 years to collapse guaranteed..... No Fed intervention and economic collapse before the elections..... Fed intervention and Romeny and right leaning Congress win in November and are effective in firing America's economic engine back up: possibility of no collapse or collapse averted for a decade or so. Etc.

I can say this: By this time next year we will know for sure.....

WW.