Wednesday, August 08, 2012

This Most Recent Equity Market Rally Represented Graphically

In the last two months the market has rallied up to near the old closing high for the post 2008-crash rally. That's really not a surprise since I wrote back in May that I expected Facebook to rally over June and July.  In the modern-day freak show everything goes up and down at the same time with programs doing almost all of the large buying and selling across the entire market.   

All of this rally but the minor perturbations over the last few days has been contained in four up days.  Four days out of more than two months.  And, in the Dow, as an example, only one third of the companies have risen in unison to new highs or close to new highs.   Those companies are all dividend-paying companies.  ie, While the world of global finance is again on fire, the only stocks rising are those that are considered defensive.   Mind, you I said considered.  They are not defensive.  Fundamental equity demand by a measure I follow has been collapsing since the first week of July.

While I don't yet measure the macro dynamics in the market to support a crash, this environment is very similar in many ways to 2008.   The fundamentals are building for another possible crash in the next six months.  Possibly by the 2012 elections.    The gamblers need more money courtesy of the head croupier, Bernanke to keep this Ponzi scheme going.  A crash would be interesting since corporate lackey #1 Obama has told us he fixed the financial system and corporate lackey #2 Romney wants to again deregulate the financial system.   This seems truly a choice of the two most incompetent corporate shills in my adult lifetime.  Not that Clinton & Dole or Bush & Gore or Reagan & Mondale or any of the others represented anything much better.

The appearance of market strength belies a substantial sickness of underlying dynamics.  The massive gaps in liquidity (price) that are shown in the graphic below are representative of a market driven by derivatives leverage.   You know, the same leverage that allows 1% of the population to subvert democracy and the economy for the other 99% of us.  Oh, that trade is most certainly going to unwind.  I'd bet my life on it.


Graphic of the SPY S&P 500 ETF

posted by TimingLogic at 5:02 PM