iag | blog » Bernanke http://blog.sterniag.com where the weekend starts Mon, 19 Jul 2010 14:41:57 +0000 http://wordpress.org/?v=2.8.5 en hourly 1 End of the Party? http://blog.sterniag.com/2010/01/24/end-of-the-party/ http://blog.sterniag.com/2010/01/24/end-of-the-party/#comments Mon, 25 Jan 2010 04:05:58 +0000 Daniel http://blog.sterniag.com/?p=143 Nothing puts the fear of God into bulls like a good old fashioned (vicious) pullback. During the shortened trading week, US equities lost more than 5% during three consecutive trading days. The sheer magnitude and breadth of the pullback no doubt gave traders a quick reminder of market conditions a mere 12 months ago. Since bottoming in March of 2009, stock markets worldwide have got a one-way escalator and refused to get off. For instance, US equities are up a dazzling 70% since the trough. The escalator is mainly powered by a tidal wave of liquidity courtesy of central banks around the world. Since March the market has yet to have a pullback in excess of 10%, despite relatively two minor corrections in June and September. However, there are increasing signs that the escalator is about to power down and that bulls are in for a nasty awakening. Let’s walk through a quick list of reasons why the long-overdue correction may finally be at hand:

  • A main support for the rally was increasing risk appetite evident in a falling USD. Uncle Buck has been on a tear recently against EUR
  • Decent corporate earnings have already been MORE than priced in. Case in point, check out Goldman’s record earnings, only to see its stock aggressively sold off
  • China – the much talked about global engine for growth – is now on a tightening cycle. The People’s Bank of China is concerned about the country’s economy from overheating and has aggressively clamped down on credit expansion (much more effective than raising interest rates).
  • Bullish investor sentiments are approaching levels last seen in 2007 – before the onset of the credit crisis
  • Unemployment still getting worse with no speedy recovery in sight
  • Team Obama-Volcker spells trouble for investment banks’ future profitability
  • Uncle Ben’s reappointment is facing increasing uncertainty in Congress

From a technical analysis standpoint, pundits are talking about the major support for the S&P at 1078. In this view, the coming week will then be a do or die week for the US market. However in truth, these resistance and support lines are more of an art than science. Take it with a grain of salt and let’s see what happens.

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