Why The Rally Is Fake

There is something unsettling about this latest stock market rally.
I asked myself, what has changed?

Is there less uncertainty in the markets?

Are economic reports exceeding our expectations?

Are southern European states running balanced budgets or continuing to slide backwards and needing even larger bailouts/handouts?

Are bullion producers overwhelmed with supply or orders for more gold?

Has the banking system become better capitalized and more responsible?

Let's review some charts that give quite a variation of indications:


Gold seems to be indicating a pull back as low as 1500, at least from a technical standpoint.  But is something else brewing beneath the surface?


The S&P rally to 1360!  I will believe that when I see it.  Perhaps if QE3 is implemented.

Vix seems to support a rally as the S&P chart suggests.  Point and Figure charts were indicating Vix of 74 only a week ago.  Go figure.

Copper at over 8 bucks!  That would be something.  I think Point and Figure are faking us out on this one.

Treasuries at 150, only if the S&P, copper, and vix charts are very wrong.

The dark lord Libor is climbing again.  Certainly reminiscent of 2007 and 2008.

The Treasury - EuroDollar spread is climbing too, not in a spectacular manner, but enough to question the direction we are headed.

Of course the markets don't listen to my view, they just do what they do.

It will be interesting, even breathtaking, to see the action this autumn once transaction volumes pick up.

My gut feeling is that the market is faking us out and preparing to deliver considerable punishment to the bulls.


  1. PW,

    Bob Prechter said that if a rally seems particularly strange, then it's probably a wave B (Elliott wave). This is the one where a lot of retail investors, economic charlatans, goofballs and other propeller heads are piling into the market - believing the hype of a false recovery etc.

    Reality is swift to ignite however and judgement harsh, once the lows of wave B are taken out and wave C unfolds, sweeping panicking retail investors, charlatans, goofballs and other propeller heads to their financial ruin.

  2. Great post PW...check this out.

    18% of all personal income is derived from Government transfer payments.

    Life is good on the roll


  3. I had to study the BEA chart for some time to comprehend just how far down the income redistribution path we have gone Bill. It is sickening. Something has to change.

  4. Mercury4, I could not agree more. It is my view too that wave C down will be particularly nasty. One preliminary calculation I made gave a number below 900 on the S&P! It seems hard to believe, so I need to recheck the charts and my figures. QE3 could throw a monkeywrench into these calculations if it actually happens, but there seems to be growing resistance/realization even withing the Fed that perhaps one can not solve a debt problem with more debt.
    We will see what develops over the next few months.


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