QE STRETCHED THE MARKETS TOO FAR ABOVE THE 200 WMA

QE stretched

Just as I predicted the Nasdaq generated a marginal breakout above the 2000 high and then proceeded to correct. At the top QE stretched the market way too far above the mean (200 week moving average). This had to be resolved either with a lengthy sideways consolidation to let the average catch up to price, or a correction. We got a bit of both. Now the market is set up for the next, and I suspect last leg of this bull market as central banks again make a massive monetary mistake and create the next series of bubbles.

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82 thoughts on “QE STRETCHED THE MARKETS TOO FAR ABOVE THE 200 WMA”

  1. Gary Post author

    Despite a nearly 14% rally retail traders are still buying puts at a level only seen 3 other times in the last 7 years. At the bottom in 2008, After the flash crash in 2010 and again last Oct. Not surprisingly every one of those occurrences was at a major bottom. The difference now is that they are still exhibiting extreme bearish behavior after such a strong rally. These are the traders that are notoriously wrong at every major turning point.

    2. Don

      Good point Gary but where are you getting the info regarding the heavy buying of puts by the retail investors? The CBOE put to call ratio isn’t indicating anything unusual,

  4. Ty64

    What if the Bankers are not able to keep stock prices elevated much longer?

    Unfortunately , it’s quiet possible that Mike Maloney’s interview with Harry Dent is nothing more than “hot air”. Nether less, Dent is calling for a 80 to 90 percent stock market plunge…due to deflation.

    I’ve recently seen the video, “The Great Deflation: Investment Strategies for the Next Leg Down”. Several reasons were discussed that pointed towards deflation coming before we see inflation. One being the Baby Boomer generation. The Baby Boomers are a large group that are now beginning to liquidate their assets…basically they have begun the process of CASHING OUT…will the Bankers buy everything the Baby Boomers will be selling?

    Well, I can only hope Gary is correct and we are not heading into a severe deflationary environment before we finally see inflation. 🙂

    1. Gary Post author

      Central banks have demonstrated without a shadow of a doubt that they can lift markets with QE. What they haven’t been able to do is stop the bubbles from forming.

      1. david

        The NASDAQ is already green, I hope Yellen will hint in her speech today, that a rate hike is not on the table in April, so it may spark a rally today.

    1. Stevie

      And if central banks can lift markets, why is Japan in a 30 year bear market. Europe continues the trend down over the past 18 months..

      2. Gary Post author

        Notice that just as soon as Japan started their massive QE program the Nikkei rose almost 150%.

          1. Gary Post author

            That’s my point.All central banks have to do is start another round of QE to levitate markets. They’ve shown they can push them up. What they haven’t been able to do is stop the bubbles.

  6. Stevie

    Vix is indicating traders see no risk ahead.
    Not sure why you continue to think folks are buying puts head over heels.

    1. Ralph Wiederzane

      Sure you’re not a disgruntled listener of Big Gay Al and Cory “Silly Buns” Fleck?

    2. Gary Post author

      Because I have a subscription to sentimentrader where I get real time data. I don’t try to extrapolate data from an index.

      You really should get a subscription. It isn’t even that expensive. Every serious trader should have one.

  10. Ralph Wiederzane

    I like how the miners and gold and hanging in despite the bashing in oil. I’m one day closer to buying the XBI, probably tomorrow I start if not later today after the gym. I’ve seen this story too many times, Gary on a white hot streak at the same time so many doubters. It’s like taking candy from a baby!

    1. Duncan Smith

      Oil hasn’t taken a bashing, its been trading sideways. Keeping an en eye on markets and considering various possibilities isn’t “doubting”, just common sense.

      2. Gary Post author

        The 5 day RSI has reached oversold on oil. During the advancing phase of a larger intermediate cycle DCL’s typically bounce pretty quickly once RSI hits 30 or lower.

      3. Ralph Wiederzane

        “Oil hasn’t taken a bashing, its been trading sideways.”

        Call it what you want, but it my book a 3.66% drop in a day is a bashing, and so is a 10% drop over four days. It sure hasn’t been getting stronger, and it doesn’t qualify as sideways the last week either. Good luck with the goggles!

  12. Tom

    Fish tail blog. always right, never wrong. I wonder if DUST can get to to $8 within a week or two.

      1. Ralph Wiederzane

        Got that right! It’s surprising how many people come here to throw sand in Gary’s face, only to get spanked time and time again, losing money when they should be getting rich.

      2. MuffinTop

        So glad someone else other than me has the decency to point out the obvious — the trolls that somehow just keep coming back for more.. and never take a moment to appreciate the fact that this guy [Gary] is actually providing incredibly useful information for FREE!

        F–ers 🙂

    1. Ralph Wiederzane

      That would require the average Dorito-laden, soda drinking Ameritard look several months into the future. Unpossible!

  14. Punster

    Anyone know when DUST will be doing a reverse split? I assume its already been announced?

    At the rate its going it will be zero by next Friday if they don’t do something soon.

    Jorgy? You know anything about a reverse split??

    1. Gary Post author

      It’s been my opinion that the move down into the ICL may just turn into a long sideways consolidation rather than the sharp move down traders have come to expect from the sector.

      1. RayB

        I’m still holding my GDXJ Old Turkey … I’m not good at short term trading … just adding more when extra funds become available.

  16. Bill

    Fed Chair Janet Yellen speaks at the Economic Club of New York

    Concerned by some low inflation readings
    Fed has ‘considerable scope’ for stimulus if needed
    Global developments and risks led to project slower path of rate hikes
    Inflation likely to remain below Fed target this year
    Current neutral real interest rate likely close to zero but will rise as economy improves, allowing gradual increases to Fed target rate
    Global turmoil impact likely low on the US because it kept down interest rate hike expectations
    Another oil price drop could hurt global economy

  17. Gary Post author

    This rally today increases the odds that a runaway move is starting. I still really like biotech. It appears to be forming a rounded bottom similar to what the miners did.

    1. Rob

      Gary,

      Seems like a runaway move also for gold and miners. Maybe time to buy now before you miss out.

      1. Gary Post author

        No, No, No. You never buy after something has already rallied 90%. Just be patient. We will get an ICL by May.

  19. Anthonyo

    Gary,

    Two questions:

    1) I noticed in your COMPQ multi-year chart , in 2007 the index dipped way below the 200-week moving average by almost 1000 points….but in 2016 recent correction it approached but stopped shy of the 200-week moving average and turned up….Doesn’t this not mean that the correction of 2016 is “not over” yet?

    AND,

    2) If another round of QE is what you expect from the Fed, then why are they jaw boning rate hikes every chance they get? AND, do you forsee the 10-year rate to go down again later if another round of QE happens? If so, how long until QE round starts and how far down will the 10-year rate go and by when in your opinion?

    1. Gary Post author

      IN 2008 we had a financial implosion and a severe bear market started by the housing bubble. We have yet to get the bubble so there is no bear market this time. Just a sharp correction back to the mean before the next phase up (bubble).

      1. Anthonyo

        Thanks Gary,
        Where do you see the 10-year bond rate going if new QE round occurs, and by when do you see it?

  20. Herman

    it took a few days longer than I expected, but there it is: EUR moving up again. It may rally quite aggressively from here, with positive consequences for gold, oil, stocks.

  21. Alexandru Popovici

    closed my short gold position with virtually no gain.

    keeping 25% weight in TMF on good profit, rest=cash

    1. victor

      you gave up…, do you think it’s up to 1300+ now? my thinking we will dip lower in the next days…, I don’t short though…, but keep light on silver, tempting to dump silver miners in good profit…, Thanks Alex.

  22. Bill

    Yellen answers questions after her speech:

    Economy has proven ‘remarkably resilient’
    Global developments significant for US outlook
    Exports still a small part of US economy but we are exposed to risks
    Abnormally high levels of involuntary part time jobs point to jobs market slack
    I cast some doubt on how much one should read 1.7% core inflation as an uptrend
    The Committee did rethink, in a sense, the policy path (names global growth)
    FOMC isn’t seeing secular stagnation but expectations have been falling
    We are forecasting an improvement in productivity growth
    Monetary policy has been under a financial burden from fiscal policy
    I couldn’t have imagined 6-7 years ago we would still be employing similar policies

      1. Richard

        second that. It is not their fault about the rate decisions because they cannot raise rates when the market is confirming lower rates.
        But, they are being opaque when they claimed they are being more transparent. They are feeding alot of BS out to the media.
        Actually, they should not even be making all of these statements to the markets.

  23. Gary Post author

    Looks like the shorts over at Ker are getting clobbered again today. How many times must they get kicked in the teeth before they take my advice and quit trying to short a baby bull.

    Two positions. Long or on the sidelines.

    Never short.

      1. Richard

        If you are looking for a fundamental reason, the FED confirmed “global risk.”
        On a technical basis, $35 is right around the corner if $38 fails.

    2. Richard

      That’s right Gary, never trade against the trend. I like your commitment.

      Anyhow by trading against the trend and getting clobbered not only frustrates people but also corrupts their “frame of mind” for future trading.

      HUI 150 x 185 remains. The push to 190 confirmed this, 250 target.

  24. Alexandru Popovici

    Victor, yes, yesterday’s shallow core PCE of merely +0.1% and today’s Tellen’s remarks have sufficed USX to plunge — a change of character in the market due to fundamental grounds –> best option under such circumstance is to move back to the sidelines.

    1. Alexandru Popovici

      Victor, as to a gold trade: I do not know now. Cycle counting is confusing now.
      Gold may have extended its DC significantly so that we are now on day 2 while a new high may be charted before the actual IC decline starts.

  25. Alexandru Popovici

    Gary, i think shorting is ok on the secondary trend as long as:
    – it occurs on the IC decline
    – it is done with a smaller weight , hence lower capital at risk.

    As to what happened today with USX (and gold in its shadow) was the result of a dovish PCE index reported yesterday –> it relaxed Yellen’s statement today and provided a red-candled follow-through.

    HAD YESTERDAY’S REPORT ON PCE INDEX SHOWED +0.3% INSTEAD OF JUST +0.1%, NOW THE SITUATION MAY HAVE BEEN QUITE DIFFERENT –> USX TO NEW HIGHS AND GOLD BELOW 1200 😉

  27. Alexandru Popovici

    Victor, I think the IC decline has been postponed by yesterday’s report on core PCE index and the ensuing Yellen’s remarks today so that, yes, you may be right and see gold at 1300 BUT AT THE SAME TIME I THINK WE ARE AT THE BEGINNING OF THE NEW DAILY CYCLE WHICH WILL FAIL and prove left-translated quickly.

    Psychologically, this is a very dangerous environment for going long gold now: it is the perfect timing for smart money letting retailers get on board buying heavily and preparing to short them.

    I will renew my short gold trade when I see the IC decline comencing.

    1. victor

      Thank you Alex, I have only silver etf and a silver miner that I want to sell today thinking the same … better stay aside for a while…

  29. MuffinTop

    Gary — This seems unlikely in my opinion but do you think that GOLD could still very well tag $1300?

    Ps: I’m also looking at a possible H&S which of course has bearish implications and I think Sentiment is also rather bearish at the moment as well, yes?

    Thx dude 🙂

  32. Anthonyo

    Headline today : ‘Janet Yellen ignites stocks, gold & bonds.”

    Me today: Wait!, I can see something in the horizon approaching steaming a puff of steam in the air … Let me get my bionaculars wait…
    Oh! now I see: It’s The QE TRAIN! and it’s heading this way again.

    10 yr rate may yet plummet again if they come in with QE 4
    damn me Im refinancing now! not closed yet though
    what to do what to do

    or as SNAGGLE PUSS used to say:”Tell me it isn’t True, Tell me it isn’t Truuuuu”
    Here is the QE Train now>>> https://www.youtube.com/watch?v=k4qFxTTi8q0

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