Wednesday, September 08, 2010

A Very Sick Equity Market

It's amazing to me how many people within the financial community rely on such idiotic measurements as sentiment to divine the future of anything. We wrote on here years before the collapse that sentiment would eventually fail. It not only failed. It collapsed. And all of the way down we had to listen to endless pablum puke about how sentiment was portending a rally. Actually, sentiment was portending doom and we got plenty of it till the Fed stepped in and gave Wall Street trillions of dollars of our money to speculate with. If the Fed hadn't done that, the market would have continued to implode regardless of sentiment. Don't expect a repeat of that for two reasons. One, Wall Street now knows the economy is not going to recover, so they may not step in to buy stocks. And two, because the Federal Reserve isn't going to have the political cover to pull such a stunt again with tens of millions of Americans suffering economic depressions.

Once again in today's environment we see the same asinine analysis. Sentiment is portending a rally. Sentiment this. Sentiment that. We've been writing for years that Wall Street is the dumb money this time around. This is a market of professionals. The consumer never came back to stocks post the 2000 collapse. This is a market where financial firms bat shares back and forth. There is no one else to shovel their shit off to when things go bad. They are left holding the bag. We saw that dynamic in spades back in 2008. Yet we get the same deluded psycho babble about sentiment today.

Sentiment and technicals are a function of fundamentals. If you understand fundamentals, sentiment is out the window. In other words, during World War II, after ten million people had been butchered, sentiment was very negative. Did the war end? Only years later after another forty million people were murdered. Sentiment was negative because fundamentals warranted it. Wall Street is endlessly ignorant.

This is a very sick market. Below is the S&P 500 ETF over the last few months. Look at the gaps all over this listless market. This is showing us that derivatives are being used to try to run the market up and down on declining participation.

Derivatives - a financial contract with no intrinsic value used primarily for speculation aka gambling.

I wonder if we could wake up some morning and the market is down 20 or 30% at the open. That's not a prediction but we have never seen this type of market in the U.S. The impossible has the chance of becoming the possible because of fundamentals.

posted by TimingLogic at 11:38 AM

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