Correction Setting the Table for Santa?

Posted by NFTRH @ Biiwii.com

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Last week we became bearish the US stock market when the indexes lost the support parameters originally laid out in an update on Tuesday. Then, on the sharp rebound NFTRH+ noted a short trade on SPY. That is still in progress. So what is next for a market that is taking a much deserved correction of its excesses?

We should not feel the need to predict because NFTRH’s approach is intuitive in reading charts by daily, weekly and monthly views, checking macro data that matter (i.e. look forward) like the upcoming Semiconductor Book-to-Bill ratio for November, and to lay out possibilities and refine probabilities.

Despite global news items, last week’s drop in the US stock market was a probability owing to the deplorably over bullish sentiment we noted in #320 and its over bought proximity above important moving averages that we also talked about recently.

The Dow, S&P 500 and Nasdaq 100 (i.e. US market headliners) are on plan for a corrective hit in the first half of December (recall also the typical December seasonal we reviewed on page 33 of NFTRH 319) and we need to finish managing that before any thoughts of bounces, rebounds or bull continuation via a Santa rally.

If Santa does come on schedule, we will only call it a bounce until it proves otherwise. 

On Friday, in the midst of bearish markets far and wide, I wrote an article speculating about a potential counter-trend bounce in the beaten down ‘inflation trade’ http://nftrh.com/2014/12/12/is-inflation-oversold/ and this theme could mesh with a ‘Santa Rally’ and/or ‘January Effect’ rally that could begin to get itself together over the next several weeks.

Things are actually getting interesting because we have downside movement in the major US markets, ‘tax loss’ season in full swing, commodities and the global ‘inflation trade’ (incl. certain global markets like Canada, Australia and Emerging) approaching support levels (ref. the Canada and Aussie dollar targets/support in the article linked above) and silver and gold, however uninspiring they seem at the moment, providing a hint as silver leads the recent relative strength in the precious metals vs. commodities and stocks.

As is always the case, any year-end speculations are taken against the unchanged big picture view of a global economic contraction and the slow erosion (some would say deflation*) of previously inflated asset bubbles.

I don’t care what kind of upside Dow targets come out of Martin Armstrong’s computer. Our simple charts have shown again and again the precarious nature of the US stock market as an inflated thing with no backing fundamentals outside of policy making. So that is the caveat as always. The chart shows Monetary Base and Debt-to-GDP fading and flat lining, respectively. 

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Please take a moment to really look at that chart. Let it tell its story. Frankly, seeing something like that makes me feel a little uncomfortable even writing a segment about a would-be Santa Rally because nothing has changed for people who want to look beneath the surface (admittedly a distinct minority in the gambling casino filled with wild eyed players) and consider what is really in play.

Total Public Debt to GDP has leveled off and the post-QE3 money supply is dropping. In response, the S&P 500 has only just begun to respond. You and I are not the only ones who see this. The average stock bull does not see nor care to see it, but our big brained friends at the Federal Reserve certainly do. Depending upon what transpires the first couple of days next week, this paints the upcoming FOMC meeting as a notable one.

The market’s interest rate price fixers issue their statement at 2:00 (ET), followed by a Yellen PC at 2:00 on Wednesday, December 17.

If Santa is coming, he may take his cue from whatever comes out of the orifice of this multi-headed group of autocrats. Again, they see clearly what we see in the chart above.

Bottom Line on Santa

So with a typically dour NFTRH caveat fest behind us, we can move on with the understanding that we are dealing in what is (a mocked up bull market, but a bull market nonetheless), not what I personally would like it to be (a more honest environment… ha ha ha, he sounds like a financial flower child, a hippie… an idealist!).

The market has lived by the policy and it will either continue to live by the policy or die by the policy unless our big picture macro view is wrong (always a possibility folks) and a sustainable bullish environment – sans QE – engages. Again, we will watch the likes of the Semiconductor b2b and also consider whether the plunge in energy and other important commodities is like a beneficial QE, to the US at least.

So with that, let’s play it straight and move on to the jolly rotund man in red.

*Note: the above is followed by 15 pages of different market sector analysis, charts and recommendations, all up to date, that can be read in full HERE – Money Talks Editor