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Week Ahead 8-8 and the August Surprise

admin on 08 8, 2010

Week Ahead

I think everyone understands not to fight a bullish trend, but at some point the manipulation has to stop.  Quite frankly, I have thrown my hands in the air to try to see what is moving these markets higher.  I see nothing but mediocre news that gets dripped to the average consumer in campaign like style.  Earnings for the most part have been great.  Corporations have benefited from the lower employment costs, low interest rates and flat demand.  Investors tend to believe the overinflated forecasts by these corporations.  Fedex was a prime example a few weeks ago when they changed their flat outlook to bullish.

I continue see deterioration in every important aspect of our lives.  Increasing home foreclosures, stalled consumer spending, decreasing commercial RE valuations and loans, money supply dropping like a rock and no improvement in site for unemployment.  When we are faced with such overwhelming bad news, then we have to take a look at what could potentially be driving institutions to buy.  Why would there be such overwhelming support in an economy with such a lousy outlook?  They know something.  Something that will be explosive in nature and something that we should be prepared for.  After digging into some stories and talking with partners it seems that Tuesday could be the day of major news announcement.  The rumored announcement is that we will have some form of another round of quantitative easing.  The FED will most likely announce it on Tuesday in some type of correlated effort with Fannie and Freddie, which coincidentally were left out of the latest and greatest Financial reform so they can continue to manipulate the dog and pony show.  Some have said it will be a coordinated joint international effort, but it will most likely start here at home.

So what does this mean for the market? If there is  QE2 event as it is being nicknamed, (Quantitative Easing 2, not the cruise liner), we could potentially see a huge hyper extended rally that gets all of the shorts out of the way.  The would make it seem like the next big bull leg, but we know what it truly is another attempt to revive our economy.  All mainstream media outlets have been pushing that our economy is cruising along fine, but given the deterioration that we have already discussed we know that it is simply not true.  Public perception is important to keep the hopes and dreams alive.  Peggy Noonan recently wrote a piece in the WSJ about how the dream that our kids will have a better future then we did has basically died.  Sad..but true.

So please be prepared this week for some major moves.  Volatility will most likely get crushed with a large positive move in the broad markets.  Buying front or second month options will be the quick play.  The move could last for a couple of days to a couple of weeks.  Ideally we will be able to take advantage of the quick move then look for the markets to settle in.  If reality hits and the market does not like QE2, then we still most likely see a rally, but it will fail to puncture the resistance quickly. It may take several days to get through the resistance pivot points.

If the FED, Fannie and Freddie stimulate a massive mortgage buyback, then it should theoretically help the economy, at least in the short term at the expense of the taxpayer.  Short term…great, long term …we will pay for it in the end!

Keep an eye on the bigger picture resistance areas, they will be key targets in the next couple of days.

I have also posted two articles in the commentary section.  One discussing the QE2 and one about US Treasury Secretary Tim Geithner and the fraud he has portrayed.  These may not be for everyone but they help explain pieces of the puzzle that are not in the main stream media.