21 August 2009

SP Futures Hourly Chart at Noon

The "W bottom" worked, and equities blew through the Pivot this morning on 'better than expected' housing starts, and a general consensus among the financial spokesmen that the recession is over, although with risks to the downside if stimulus and more importantly monetary support from the Fed, is withdrawn from the financial system too quickly.

Today is option expiration in August. Our high confidence target of 1021 has been met on the chart. Now the market must prove that it can consolidate and move higher.

Our view is that the recession is not over, and that the Fed and Treasury have merely papered over the substantial problems that remain, while alleviating the short term credit crunch issues with absolutely massive injections of liquidity directly into the banks.

Having said all that, stocks can rise without regard to any fundamentals for some time if there is enough will and capital to make it happen. Treasury and the Fed wish this badly because rising stocks will quickly make people forget their mistakes and uneven policy reactions.

Can they do it? We will see. The result *should* be another financial asset bubble at best, a lingering zombie economy very likely at worst.

Should they fail, probably off an exogenous event which can absorb the blame, then the market will fold like an old accordion because there is little commitment underneath it, only paper.