Are missive tonight is mainly by way of three graphical exhibits that speak far clearer than words.
1. The SP500 did not sell-off today as expected.
The trading pattern today - around the time of the FOMC release was in my view - very abnormal - as per my comments on first chart exhibit. It should be obvious to all, that Bernanke has used FED money to make a lot of friends in Banks and on Wall Street. The buy programs that instantly met selling today, in my view were the action of the PPT, or the secret Wall Street club called - friends of Bernanke.
2. What now?
When your best investment or trading plan does not go as you expected, your most potent defensive mechanism is an open mind and psychological flexibility. "I have changed my mind is a powerful statement." This is also why I teach the importance of a "what if plan"- or your alternate Plan B (see previous blogs).
At the moment, my personal plan B is that the market will trend slightly higher for slightly longer (a few more days), as it has now potentially inverted, due to a man-made upset mechanism and thus cycle interference.
I have taught this concept here on the BBTL blog. In Elliott Wave (EW) jargon, this is called an EW extension. Frankly, an EW extension is most likely (statistically) to occur in equities in a wave three. In some ways, this also validates my EW wave as a three count up - with four wave down - next.
So, for now I will closely watch the open tomorrow, but unless it gaps down at the open and also closes lower, I must discard my Plan A, and suspect that my Plan B - a cycle inversion (or Elliott Wave extension) is now in play.
3. Risk is High
Given the unpredictable nature of a coming Elliott Wave four down, the weak technical indicators, an overbought market, and the highly unusual seasonal inversion in equities during both September and October, everyone should be suspicious of abnormality, and realize a higher risk than normal situation exists.
This is even more apparent given the economic situation and attitude and demand for change, sweeping around the world.
It is easy to imagine and anticipate the SP500 index selling off at least 60 - 90 points from this level. Equally, the most optimistic upside target I calculate is about 1228 - 1232, or just above the magnetic double top from the April yearly high .
This 30 up : 90 down ratio is a bad reward to risk relationship and places investing or trading, far too close to outright gambling in Vegas for my personal comfort level and savvy demand for a good entry set-up in trading at the outset.
So, one obviously needs some protective thinking, some common sense, and smarter than normal investing and trading strategies in a difficult situation.
Although I was glued to my computer screen (near the FOMC release)I sat out of both buying and selling; perhaps luckily today. What about tomorrow? Unless the SP500 market OPENS LOWER and also closes below the SOFT stop on the second chart, I will then assume my Plan B Inversion or EW extension is taking place - while continuing to use trailing stops that will immediately flip me to a more bearish posture.
Please note therefore, that I have raised (or tightened) my trailing stops today (as compared to the stops shown yesterday). Trailing stops are in my view, a highly effective tactic to both protect profits and reduce downside risk.
The first upside or higher point of resistance and thus downside market vulnerability for the SP500 is about the 1209 level - a mere 1% higher. As for the time this inversion could last, well, it depends on how fast prices rise. If prices rise slowly, at just a few points per day as they have been lately, it could be a week or so. Faster rise in prices would exponentially shorten the inversion.
The primary problem we all face together, is that we have absolutely no idea what the PPT or Bernanke are up to. Are we being hoodwinked by the FED and PPT?
It some ways, it is obvious with the benefit of hindsight, that Bernanke did not want to look foolish today. So, his pals on Wall Street were prepared to help him out. His QE2 announcement needed stability and acceptance to prove that he is not incompetent or reckless with taxpayer capital.
What harm is a little stock market intervention? What is a few trillion amongst banker friends? Time will tell.
But how much further and higher will stocks go before global institutions gang up on the FED and force the PPT to exceed their daily buy limit? According to Bernanke, concerns that the world may have about excessive FED spending are over stated.
As we will soon detail here on this blog (Part II - Financial War), Bernanke will soon face a far more formidable foe than an angry USA taxpayer. Bernanke, the PPT and the FED, will meet Nature and some upcoming cycles before the month of November is even out.
By our KRTT accounts, Nature and the coming wave four down, will be a preview of what is coming in 2011. You will want to pay close attention.
Yet, even Bloomberg reporters noted that Bernanke specifically mentioned that his new QE2 stimulus program should boost growth by keeping rates low while increasing stock prices.
See the charts below and stay tuned.
Again, unless the SP500 market gaps down at the open, and also stays down at the close, this market has officially inverted in my view. Expressed differently, the once freely traded capital markets of the USA are no longer freely traded.
4. No One said Investing or Trading is Fair
Lesson learned.....
Without a very high level of investment and trading education, including being able to recognize natural law cycle inversions (EW extensions), investors should be prepared to be fleeced and hoodwinked by the PPT and bankers with the insider information.
If you thought the investment playing field was level or fair, think again.
PS - This is not criticism exclusive to the USA in any way. Canada by example, is far worse than the USA for stock market manipulation, rampant tipping (sharing insider information) and multiple forms of white collar crime. Securities officials look away, and police and the crown counsel do not investigate or prosecute white collar crime in Canada, even when it is handed to them on a silver platter. Fact!
Evidently, prosecution and reporting of white-collar crime in Canada is just plain bad for the Canadian Stock Exchange business (and profit), will lessen Canadian investor confidence as reported in the news, and even cost money. Imagine that. Canada will save money by letting criminals walk free and without prosecution! Canada the best place in the world to live - for criminals.
Look as example, where Conrad Black and our Canadian Nortel offenders were prosecuted. Look what happened in the great Canadian BreX scandal (nothing).
Thank God there is some form of justice system in the USA. Canadian justice, and the get tough talk from our Canadian politicians is but a laughable charade. Don't even get me started.
Click the Bloomberg link as below to read the FOMC news as institutional managers usually read it.
Bernanke Spends $600 Billion to Keep Rates Low and Boost Stock Prices
Sincerely,
James Kelly Sr.,
Editor in Chief, BBTL Blog
www.KRTT.com
www.Facebook.com/KRTTcom
www.twitter.com/KRTTcom
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