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June 25, 2008

Bouncy Hunting

In case I've never mentioned it, I have a great distaste for FOMC meetings and, in fact, for the FOMC itself. In the middle of the greatest free market experiement of all time, we have a cabal that manipulates the markets via a price fixing scheme, depriving both bulls and bears... except for those intimate with the governors... of a level shot at bettering their lots in life. The malfeasances committed by these economists... who, by the way, are no more skilled at seeing the future than a juicy insect flying the wrong way up an interstate... beg the label of atrocities.

In fact, for all their stated good intentions, the Fed has wrought far more damage to our economy than that ad valorem tax-in-disguise called inflation. Their actions... and the fact that they may act any any time, not just during those half dozen meetings posted on their calendar... force people to become more speculative in their trading. Even the simple act of owning gold to protect oneself from inflation is self-defeating because any nominal rise in the price of said gold will be taxed. Therefore, just to stay in place, one has to be leveraged.

A prudent investor, this author included, would much rather be an owner, sitting back to watch wealth grow with the economy and to receive periodic dividend checks to boot. Instead, I have to be a trader, spending productive time watching my back so that I don't get manipulated out of my savings.

No, I did not lose money today. I don't day trade on FOMC meeting days. Just had that rant stored up for a while.

Anyway, in recent posts I've been postulating about an impending corrective bounce in equities. I believe the bounce may have begun. Let's have a look at at S&P 500 chart with lots of lines on it and see where we are:

stock chart

If the bounce has begun, it should eventually take an A-B-C form. My best guess for a target is just above 1370, which also represents a retracement of about half the decline. We'll get a better idea of a target once we see how far wave A can extend.

It is also interesting to note that waves 1 and 3 of the decline both spanned exactly 70 S&P points. However, wave 5 appears to have been halted at 1305... only 60 points to the south of its starting point. It is not inconceivable that tomorrow morning delivers a nasty sell-off to tag the 1295 target, fake everyone out and then roar higher with bears in tow and bulls red-faced at having panicked.

This entire analysis, of course, hinges on markets behaving normally, but we are not in normal times. For clues that events may unfold in ways not countenanced by Bernoulli, keep on eye on the BKX... which suffered a failed rally today... and on the price of crude oil, which could spike to $150 or crater to $125 on a moment's notice.

Well. Good luck.

 

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