[Updated: January 4th, 2013]
We are reaching for that manic moment personified by Buddy Israel over to the right of my blog. Like a coked up gambling addict going all in for the last time, today the Value Line and Russell 2000 both closed two standard deviations above their 20 day moving average for the 3rd day in a row - extremely rare and overbought. Again, it's insane to realize that this much euphoria could be generated by a six week fiscal reprieve and a tax hike for the middle class. As long as the market keeps going up, no one questions the liquidity driven mechanics of this market, nor stops to recognize that the eroding economy is diverging with the ever-rising market. Next week, earnings reports roll in, at which point this fantasy will meet the brick wall called reality...
[Original Post: January 3rd, 2013]
I highlight the Value Line Average because it's the only major index that is still hitting new highs (and the Russell 2k). Here we see in stark clarity that every single dip since early 2009 when the QE programs were started, has been bought. We also see that every rally is of shorter and shorter duration, with each wave overlapping the prior wave by an increasing amount. Lastly we see that the slope of the trend is now going vertical after a four year rise on ever-deteriorating fundamentals. Just today Dollar Store announced weak earnings guidance. So the fact that the market is euphoric on news of a payroll tax increase when the middle class is barely making ends meet, shows the depth of the disconnect. It's solely a liquidity driven fantasy only a Central Banker could love. Notice the magnitude of the rise from 2009 v.s. the prior 2003 rally, each roughly four years in length. This is a market on monetary steroids. A market like this has only one goal - to suck in as many people as possible before heading hard down...
There have been three market glitches just in the last four days alone, so a Flash Crash meltdown is extremely likely once volume and volatility explode...(here's one, and this one, and another one)...
