QE Rally

I think this is the first time I've seen an article on QE rally centered on the notion that the markets will go up regardless of what the economy does. It's not that the "double dip" concerns were fading that fueled the markets, it's been the devaluation of the dollar.

http://www.cnbc.com/id/39571830

Basically, the market seems to be expecting a Zimbawe like market where the GDP was cut in half but the markets rallied because of the worthless Zimbabwean Dollar.



This whole thing is going to end bad..

Austrian Business Cycle and Deflation

This is an interesting read on the Austrian Business Cycle. With the exception of Japan, every Central Bank monetary expansion has led to the erosion of purchasing power, devaluation and inflation. The following article explains how Japan's economy went into deflation despite QE.

http://mises.org/daily/1099

Elliott Wave Update - October 7th

So Trichet spoke and they are signaling the EU is not just going sit there and take the brunt of the US dollar's devaluation. And while they are not moving interest rates, their support for a "strong" dollar means that they will if things get out of hand. In a way all eyes will be on what China is willing to do this weekend, the fact China has the remimbi in a semi-peg to the dollar it makes Chinese exports even more competitive in the world and defeats the Obama's administration goal of increasing exports to increase jobs. So I think the market will be reacting more to what goes on with the currency than the actual number of jobs tomorrow (which are probably going to be pretty bad).

And as far as the EW count goes, we have a set up for a sell off tomorrow (on a W3) or a spike for one last rally before rolling over. I bought back my SDS position today at 1163 for a 3 point gain and I am using 1164 as the stop tomorrow. If there is a final leg, then the next resistance will be 1173. On the downside, the magic number is 1148.50. We need to close below 1148.50 to start confirming the change in trend.

Elliott Wave Update - October 6th

It seems like the market is positioning itself to another high. This rally has stretched the boundaries of an EW count that makes sense, so I will put what I think looks right once I get a better idea of what is going on. There is no point in drawing up different counts (that would be as good as flipping a coin) if unsure. But going back to the real reason of what we are going up, as long as there is the perception that the US has embarked on a deliberate strategy to devalue the currency and in the process create inflation, the rally will continue. What really matters this week (more than the job numbers) is what Trichet, the EU Central Bank President has to say about the Euro's appreciation. If he signals the EU is not worried, the market will continue to climb at the same rate as the Euro. Obviously, we will get a retrace at some point but right now the issue of monetary policy trumps economic recovery, jobs, etc. And I am sure in the end we'll find an EW that makes sense but at this moment the count is really in the hands of Benanke and co.

Elliott Wave Update - October 5th

What a day! just when everything was set up for a sell off, we got a nice surprise from Japan. The Elliott Wave count is out at this point and the reversal signals that were clearly given yesterday by the market have been neutralized but having the 1157 peak breached and more importantly closing at 1160. The issue at hand is that now Central Banks around the world are going to flood their economies with liquidity and thus create inflation in the future. By doing this, profits are going up in nominal terms and commodities will continue to go up so the market is pricing this and NOT an economic recovery. Actually, we'll probably have a recession and we'll see the stock market go up just to keep up with inflation. So I think we're in for a "bull" market even if the economy remains in the dumps.

My strategy is to cover short positions at the retrace (whenever that happens) and go long on commodities, gold and stocks.

Elliott Wave Update - October 4th

The short trend reversal is now confirmed as long as we don't get any more closes over 1140. The intermediate trend (multi-week trend) was confirmed bearish on Friday so the change of trend in the short term (multi-day) is a good sign for shorts like myself. What remains to be seen is what percentage of the rally from 1040 will this new Minute wave retrace to. If we get a retrace without much impulse that holds in the 1090's area, my guess is that we'll see a rally to 1250.

I am personally bearish on the economy as there is nothing fundamental that will increase profits for companies, which is the core driver of stock prices. However, if we get clear inflationary signals or policies then we might get a big market rally. My reasoning is that the market will keep pace with inflation, so even if we got a "real" earnings growth of say 2-3% in the S&P 500 but a 6-7% inflation then we would get a nominal increase of 9-10% in the index. It's really just a matter of time before this happens, question is really when. The fact that commodities, gold or most of anything priced at the international level have been going up does not really mean that these things have "gone up". What's really happening is that the US dollar is losing purchasing power and thus these perceived gains in prices are really a reflection of the devaluation of the US Dollar. Most Americans have not seen hyper inflation before so purchasing power is mostly a concept. But anyone who has been to Brazil, Russia or even Mexico will understand what I am talking about. Case in point, Zimbabwe in 2007. The country's economy essentially collapsed yet in nominal terms was the best performing stock market in 2007.. and this is the very reason the DOW will never go to 400 and why Elliott Wave International bearish count will never come to fruition.

Elliott Wave Update - October 1st

The market failed to confirm the short term reversal. However, in looking at weekly candlesticks the market is now confirmed at a top. Looking at Elliott Wave and Technical analysis the market remains unclear until support or resistance are taken out. The bullish scenario would be that we're consolidating gains and getting ready for another high but after a relentless month of gains, the odds don't favor much upside. I don't think the RSI on the 30 minutes has been once oversold in over a month, that's an oddity in itself so hopefully we'll get a clear answer Monday or early next week. I remain leveraged short.