Bull Run Nearly Complete

As we had mentioned in an earlier post, an inverse head and shoulders pattern appears to be playing out.  While initially we thought the peak would end at 1220 on the S&P as mentioned in a post here, it appears that the peak is targeting 1250 to 1255. 

What is particularly disappointing to us is the poor performance of the stock market in view of the incredibly accommodative interest rate policies and massive amounts of liquidity dumped into the system through quantitative easing by the Federal Reserve. We recall the S&P at 1500 only 3 years ago, and now that 1250 seems to be within reach the bulls are rejoicing.

In our view, we should be at 1700 or higher given the tremendous intervention in the economy by the central bank.  However, markets do not behave as we want them to, despite human wishes, the behave as they need must.  We strongly believe markets will go down to correct the misallocation of resources that the Fed and a corrupt banking, political, and philosophical system has spawned. 

The bond market will only tolerate this nonsense for so long, and that time is rapidly drawing to a close as the chart below demonstrates.
The 200 day MA has been shattered as bond values begin to collapse driving yields higher.

QE2 was supposed to suppress yields to keep mortgage rates down, and so far it has accomplished the opposite. 

So the question is - where to next?

It remains our view that we are looking at a full scale collapse in both the stock market and the bond market within months as the contagion spreads from Europe.

We expect that the stock market will be severely impacted first, with March 2011 the key period.  Bonds will be impacted severely some time later, in our view.

This is reminiscent of the 1930s as the chart below demonstrates.


  1. PW, you actually believe that the bond market will collapse in 2011? Why not 2012 or 2013? Also, does that mean that the dollar will collapse in 2011 if there is a bond market collapse in the same year?

  2. I believe we will see the beginning of a long term stock market decline in early 2011. The bond market will decline in earnest shortly afterward. I will explain the reasoning behind my view in a future post that has been under development for some time, hopefully it will be completed by the end of the week.
    A collapse in the bond market does not necessarily mean the end of the dollar, and I will touch on this subject in the near future.

  3. $150.4 billion deficit last month, the largest November gap on record.

    Got Gold & Silver?

    You should


  4. Agreed Bill, precious metals should perform well during the current uncertain economic environment although we may see a temporary pullback if China increases interest rates. Stocks and bonds look vulnerable in my view.

  5. PW,

    You are going on and on and missing(missed) a good rally. Its been more than 1.3 years with your outlook (sky is falling) and the market is creeping higher.

    Of course it will happen at one point and then would be the time to short but until then why leave money on the table.

    As i already said my friend the market doesn't care what you or I think or whatever the so-called analyst/expert say. I am disciple of Jesse Livermore club, beleive in what you see on the ticker/charts leave the rest to losers to talk about :-)


  6. Thank you for your comment Walter.
    Although I have not participated in this stock rally, I did very well by selling prior to the crash and moving into gold instead. By my back of the envelope calculations my returns are in the 50% area this past year. Not bad. As for the markets, I have recently been very selective in my stock choices. I am waiting for a correction before venturing further into stocks. The current market seems hazardous to me, so I tend to buy and hold. A day trader could do well in a volatile environment, particularly if one had proprietary software ;) but that is not for me.
    All the best trading in the new year.

  7. >>By my back of the envelope calculations my returns are in the 50% area this past year.

    Thats brilliant. Way to go Bailey!



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