Oversold + Central Banks=Rally

We told you to expect a rally/bounce from some of the most stretched, extended and oversold conditions we have seen in a long while. But it is again “V” shaped as the central banks do not stop and do not stop talking. Since the lows:

We got 3 Fedheads out yapping about not lowering QE and actually hinting at more QE. That turned the markets to the second.

China adding another $30 billion stimulus.

Japan hinting at a 25% stock rebalancing in the pension fund(because Japanese markets have done so well past 25 years.)

ECB saying “buying” will start soon…

Which lead to the rumor that turned the futures this morning that the ECB is looking to buy corporate bonds in the secondary market. Of course, Reuters kinda sorta already walking that one back.

Markets are now, already into a massive area of resistance in which massive breakdowns occurred. We expect some choppiness in these areas but in a market that continues to be juiced by the few, one never knows.

The lows look good for now as the powers that be woke up and recognized that things are getting hairy and that there is an election ahead. “What? You don’t think they are rigging things?

Economies around the globe are sinking. Credit spreads have been blowing out. Demand has been heading south…but markets love bad news as it gives the boys the excuse to continue their money printing.

The Obama Administration “Control” Chart

Random whining and oh yeah…a little on the market!

A few complaints…which will lead me to the market.

Evidence that the nuthouse is still full.

Venezuela elected to the U.N. security council.

Dems continue to lie and complain that there isn’t enough money for the CDC to fight Ebola. “Not enough money” and Washington do not go hand in hand as government spending is at an all-time record and that doesn’t even include deficit spending.

Speaking of Ebola…there is no downside to a ban on travel yet the powers continue to do the opposite. What gives?

Yes…and Ebola czar that knows nothing about Ebola…nothing about medicine…nothing about health care…but knows everything about spin. This dude was hired for one thing…politics…reverse the poll numbers that shows this admninistration again behind the curve on reacting to things.

Fannie Mae and Freddie Mac and mortgage lenders are nearing an agreement that would lower barriers and restrictions on borrowers with weak credit. After 5 years of the Fed bubbling up asset prices with their artificial rigging of markets, NOW they are going to lower the bar for subprime. As usual, horrible timing and lessons not learned.

Speaking of the FED, we told you to expect the Fed to start intervening as they have targeted market drops over the past few years. Every time markets went into correction, they started the yapping which led to higher amounts of printed money. The fed came out in droves as 3 fedheads came out and stated not only should we stop the lowering of QE but that we should be starting a new round of QE. This juiced the markets. In fact, you can time the market’s move to the minute.

Markets were stretched and extended to the downside as much as possible in the short run…which led to the short covering jam to the upside. WE EXPECT SOME MORE UPSIDE but are skeptical about how much. On Friday, with the Dow up 260, the Russell was actually down…so we may already be back to the divergences that hinted at an impending top. Over time, price will meet up with the now declining 50 day moving average. Of course, first, any upside has to meet the longer term 200 day moving average. We will know a lot more on how and where this first move off a low acts into resistance.

We wanted to leave you with a line we coined in the last bear market. Bear market rallies are sharp, quick, make you feel good, get people talking about it, suck you in and bury you soon after. Just in case we are going into something of consequence, we believe that line should be remembered.

The Fed has been wise and courageous with it’s policy!

The Fed has been wise and courageous with its policy. No…we don’t believe that. Lloyd Blankfein does. Yes…the Head of Goldman says the Fed is wise and courageous. MEMO TO LLOYD…courageous is our soldiers who head into harm’s way every day. There is nothing courageous about a few unelected people who press buttons on computers to print trillions of dollars to save the market’s and your ass.

As we told you here, we expected the Fed to intervene as they refuse to let markets be free. They know markets are now used to the drug of printed money and cannot stand on their own two feet. They saw the 17 and 20% drops the last two times there was no printing and they see the recent action as they have been testing the lowering of QE. The Fed started their intervention by sending out Williams and Bullard to state we should stop the lowering of QE and indeed, look to another QE. Markets reacted twice and now we get the pre-market pop. We do not want to see what the market looks like if it ever starts ignoring the money printing.

We told you yesterday that markets looked like they were trying to carve out a low and we think they have. Two days of huge reversals, two days of oputperformance by the smalls,trans,semis and others, and two days of the Fed has done the trick. Keep in mind, tons of technical damage has been done. We are always ready to expect the unexpected but we do not believe this will be a straight up affair. We do not expect an “A” type rally but more of a “C”! We expect continued whippiness. (Is that a word?)There is no way of knowing if this is THE low but we now expect the Fed to be market friendly and election friendly on Oct. 29. They may even go back on their word of stopping QE completely…in which we expect markets to be happy with.

If the lower odds chance that the market just turns tail again, look out!

And as we said would happen…the Fed now intervenes!

Saint Louis Fed President James Bullard says Fed should delay ending QE!

With that, the Fed is now targeting the market again. A statement like this is not by chance…it is by choice and it is on purpose.

We hate Central Banks…especially our Central Bank that believe they are omnipotent and believe they can engineer economies and markets forever. Well, forever is a long time. For a few years, these unelected %#%@% have rigged markets, distorted price and yield, killed savers, created more bubbles and enabled massive leverage. As we have stated, ULTIMATELY, this is a toxic cocktail that has always lead to busts. We are in hopes that this time is different but there is too much precedent to ignore.

As we write this, markets again are defending yesterday’s lows and just rallied furiously off of this man’s words. We hope and suspect with the markets soooo stretched and oversold combined with the Fed ready to QE5,6,7…that these lows hold for now. After all, 1100 Dow points in 5 days should be enough. Keep in mind, any potential bounce would only be working off some of the recent vicious drop. The major trend would not have changed.

Again, the Fed has blinked. The Fed has juiced markets since the lows. We had better not get to the point where markets extend a certain finger back at them.

Pay more attention to the big picture!

We are noticing today’s pre-market is being yonked again. The hope by many was that yesterday was a good washout day. A washout day occurs when everyone who had not sold, panic out AFTER the drop…leading to a near-term low. This occurs on massive volume. So…yesterday does fit the definition. So…today’s open gives the market another chance to defend itself at or near the same levels as yesterday. Another reversal today would go a long way in telling us the markets have found a place where enough is enough. But one cannot predict this. One can just react to this. And to be blunt, that is the trees. The trees are a “1” while for forest is a “10” when looking at markets.

So while we believe a low can be carved out here if we can reverse again, keep in mind, it would be just part of the process we have outlined for you. The topping process took months. The top just occurred. And now that markets are stretched away from the norm, markets will tend to bounce up into the norm as they work off the stretched and oversold condition. Only in price and time does this occur before markets roll over again continuing the process.

We expect more wild swings and a lot of noise that affects markets. We also continue to believe if things worsen, the Fed will intervene with another round of QE. We do believe yesterday’s late rally was in part, the Fed intervening

Regardless, we continue to be in earning’s season where another part of a bearish process is now starting to be fulfilled and that is big blow-ups. In bullish phases, blow-ups do not occur as often. Today, we walk into a gargantuan gap to the downside in Netflix.

SLOW CRASH!

CLASSIC TOPPING PROCESS LEADS TO CLASSIC MARKET TOP… LEADS TO SLOW CRASH!

By Gary Kaltbaum
President, Kaltbaum Capital Management
Fox News Business Contributor

Unfortunately, the process has led to the market top of consequence that we thought was occurring. Now we are seeing the market ‘event” that we were worried about. We do not like using the other word.

Keep in mind, the past two meltdowns were caused by excessively easy monetary policy…which caused massive “over-leverage” of the one-sided trade. The Fed has again been successful at setting those conditions as you are seeing the “over-leverage” just start to come off.

At this juncture, somewhere in here has to be some sort of relief rally but notice under these conditions, the rallies only last a few hours. We keep our fingers crossed now that a panic of some sort does not occur but cannot rule it out as the conditions for such are out there. In any case, the market is in definitive bearish form that should not be toyed with.

We are no Milton Friedman but we have to believe the market is forecasting a global slowdown if not outright recession. The printing of money did nothing but interfere with free markets and an economy that should be left alone. The grand experiment employed by the few who have no faith in the US economy, an economy that has thrived for so long, has once again distorted price and yield which gave rise to too much leverage for the third time in 15 years. When will they learn their lesson? And we are only a few percent off the highs.

Add in a feckless administration…and you fill in this blank.

We expect the Fed to intervene in some fashion if things worsen. Yippee!

THERE’S ALWAYS MORE QE!

A big up day ends not so big…though strong TRANS,SEMIS and SMALLCAPS for a change. We do suspect there is a bounce of consequence out there as the recent drop usually gets worked off with some upside. But there was something else we saw that caught our eye. A fedhead named Williams, by no accident, came out and stated if economies headed south, more QE needed to be looked at. We do not believe anything is said by these people without a reason. Thus…our expectation of more QE may have just been telegraphed.

WHETHER OR NOT IT DOES THE JOB LIKE IT HAS DONE FOR MARKETS FOR YEARS…IS ANOTHER STORY. BUT WE TAKE NOTHING OFF THE TABLE AS THESE PEOPLE DON’T KNOW THE MEANING OF MODERATION WHEN IT COMES TO ASSET BUBBLING EASY MONEY!

IT IS NOT GOOD NEWS WHEN…

The TRANSPORTS open up 175 points on the back of a proposed buyout in the RAILS…and finish down 175 points. This is indicative of major institutional distribution.

The maarket teases the upside and downside throughout the day…only to melt down again into the close. This is indicative of major institutional distribution.

Just about every pundit on the tube is saying no biggie, everything is ok, it is just a correction, market is cheap…and blah blah blah.

The only good news is that the market is beyond oversold…in which areas like ENERGY are beyond stretched to the downside beyond all norms. This can lead to a good counter-trend rally, even a vicious rally. But the fact the market and certain areas can get so oversold and stretched to the downside is again indicative of major institutional distribution.

And now…earnings about to come out in droves. Expecting random, wicked and vicious action to both the upside and downside.