Hello BBTL Blog readership,
The Christmas Message (opinion)
Despite some minor seasonal bullishness after the October - November sell-off in equities, the current month of December has done little-to-nothing to change my "bigger and more important trend and cycle picture" which has a decidedly bearish outlook going into 2013.
That stated, I reiterate and point out, that I employ a more research-based analytical approach to financial analysis, rather than rely on Ben Bernanke, the FED tactics, or "the slippery slope of hope".
Many lately (including pros) have been a little surprised by the December refusal of equity markets to sell-off given the looming significant world problems - including the USA.
Despite the important mega-issues surrounding the sixteen trillion dollar USA national debt, and large near trillion dollar current deficit, termed as the "fiscal cliff"; it almost seems illogical that so many USA (and global) investors refuse to vote with their "sell-side tickets" lately.
Why? Is no one scared?
It certainly seems that way. However. the necessary confidence factor is indeed being actively managed by governments.
But maintaining "investor confidence" and the value of the USA monetary unit given the mega-sovereign debt of the USA and swelling FED money printing, indeed is a perilous slope.
Worse there is moral hazard, risks, and obstacles everywhere. None of these have stopped the FED.
Consider that in mid 2011, when President Obama asked for a temporary spending extension, the heated Congressional debate about USA tax increases and spending cuts created a panic sell-off in equities in the late summer of 2011.
How attitudes in America and globally have changed just one year later.
Evidently, it seems investors are being told; that there will always be more than enough money for governments to simply spend as they please - by printing even more money. Thus, there is this no need to worry.
We now have a new excuse; - HOPE.
So, is America somehow in an obvious denial that a real sovereign debt problem exists?
Or, if there is an acknowledged problem; can it simply be swept under the carpet and ignored; - forever?
The most important factor at the government level, is to maintain investor confidence, - so no one panics and starts the stampede for the exit door (in currencies, bonds and stocks).
Perhaps, there is an illusion of hope that a new USA fiscal debt solution might be achieved without economic pain or harsh austerity programs.
Meanwhile, the FED led by Bernanke and recent Chicago FED Evans, have a new plan to keep interest rates at zero rates almost forever and balloon the FED balance sheet to the moon in an outright USA monopoly-money printing extravaganza.
Recklessly, when the FED recently linked monetary policy and the FED money-printing and zero rate policy efforts directly to the USA unemployment issues, they were very clearly being extremely deceitful both professionally as fiduciaries, and even as skilled economists.
Any reasonably intelligent economist knows that "effective" or employment solutions can only be sought out with fiscal or state policy, which the FED has absolutely no control over. Ever low interest rates, do almost nothing for the unemployed and are like pushing on a monetary rope. American corporations already have arsenals of cash hoarded, - and have thus proven this point.
Moreover, FED tactical desperation is being shown repeatedly in that the FED is now forever broad-casting their intentions - years in advance, by suggesting that these programs are in place until at least 2015.
In contrast, to effective FED leadership, one of the former powerful tools of FED moral suasion by acting in complete "surprise announcements" (deliberately not broadcasting intentions in advance) was used to change the course of economies going the wrong way, and has been thrown to the wind.
Moreover, the "puppet rallies" every time the FED FOMC meets and deliberates after two days, smacks of market manipulation. Ben Bernanke's big ego is being matched by Wall Street and USA PPT dollars.
So again, America is being deliberately trained "to think (and thus act)" that the FED - never will deliver bad news. In my personal view, these are cumulative and the signs of "a very desperate" Federal Reserve.
But frankly, none of this really matters. It is not words that matter, - but actions.
What matters financially to everyone, is putting capital protection ahead of the demands for profit. Based on the recent actions of naive investors, a repeat of financial pain may be necessary.
As always, let's now turn to the technical trend and cycle truth; for some facts.
Charts (truth and fact not based on opinion)
Here are a just a few of the comments provided to KRTT clients earlier this month in our paid products:
1. December is the most bullish statistical month of the year. This has worked for decades. As example, five of the last six years (thus including bearish years) or 83% have been up. A good estimate of an average statistical gain is between 1 - 2 %. (fact)
2. Using an average gain of 1.5%, a December SP 500 close was thus estimated to be up 21 points. Given that December 1st began at the 1416 level (SP 500) , this statistical measure estimated a December 2012 close in the SP 500 of 1437. (fact)
3. KRTT showed clients four important and known reliable cycles that clustered in the area of December 19 - 21. Some of these cycles were KRTT proprietary, whereas others were W.D. Gann or harmonic related time cycles. (fact)
4. The Elliott Wave (EW) count derived by KRTT and also software products used at KRTT showed a potential to terminate an EW C Wave (up) in this exact same cycle date range. Given that trading volume will be light until the end of December, this EW count casts a bearish outlook solely from an EW perspective in January 2013. (see 60 minute chart below)
5. Statistically, the first year of the Presidential Election cycle is not a favorable one for equities. (statistical fact) Year one and two are also the two worst years during the four year election cycle.
6. The last or final bullish right-hand shoulder rally (think technical head and shoulders patterns at tops) in the beginning or entry to a new bear market is often considered a "blind bullish" shoulder that can retrace all the way back to the 78.6% level (Fibonacci math). This same Fib retracement level from the former 2012 SP500 index peak of 1474, to the mid November low of 1343, happened just yesterday (December 18, 2012) at the 1446 level (SP 500). (see daily chart)
This 78.6% statistic Fib %R, can be confirmed by doing statistical analysis of previous market tops - prior to sell-offs. (fact)
See that charts below for more clues and lessons.
James Kelly Sr.,
Editor in Chief, BBTL Blog