by John Galt
July 5, 2012 08:00 ET
The first half of 2012 has become a comic book story, not based on the superheroes of Marvel or DC, but akin to Alfred E. Neuman acting as villain, superhero, and lucky loser. Since January of this year the market has rallied not on economic growth, not on world geopolitical stability, not on stock market technicals or fundamentals, but on rumors. Rumors of Fed rate cuts, BoE rate cuts, rumors of peace agreements in strife torn nations, and of course rumors about rumors.
Call me crazy but that is not the sign of a healthy economic structure especially when real GDP is actually close to zero of one starts to remove the massive amount of government spending injected into the American system along with the collapse of the private sector with small business fearing the Taxmeggedon coming on January 1, 2013.
The following charts with limited commentary are presented to paint a “technical” picture of the markets from the start of this year through July 3rd, a sort of halfway point for measuring the markets. Needless to say with last week’s Supreme Court debacle, I’m somewhat less confident about how this year will end despite the upcoming Presidential election. Why? The one outstanding concern precious metals, commodities, and certain financial stocks are signalling is a massive wave of deflationary pressure engulfing the world economies and the lack of concerted concrete action to counteract it by governments around the world.
The DJIA has provided the perfect illustration that bullcrap be levitated with little effort, little truth, and based on rumors being spread by “unnamed sources” to the alleged financial media through the usual “Jim Cramer likes Blue Horseshoe” type of stupidity. Of course that spread to the S&P 500 also:
The broader market based on the Russell 2000 is signalling that the hopium is still dirt cheap also:
The two stocks I follow for some hint as to the direction of U.S. equity market just happen to be the two largest shareholders in the Federal Reserve and they are looking mighty poor in the first half of 2012:
While JP Morgan Chase might be teetering on massive weakness and a possible share price collapse back to 2008-2009 levels, Goldman Sachs is fighting both a technical and fundamental battle to hold the stock price at these high levels:
Meanwhile, the signals that I warned about within the precious metals markets on May 6th are still reverberating in both gold and silver prices with a clarion sounding that central banksters have limited tools to deal with and little political will to create a viable course of action to counteract the deflationary pressures.
As gold continues to signal a long term correction with massive support in the $1280 price range, silver for all practical purposes could create a fire sale between now and the end of the year:
The Euro as represented by the FXE ETF is signalling the ultimate collapse indicator:
As the Euro collapses below the 1.23 level, the US Dollar’s consolidation will end in a violent manner, probably with a massive rally taking the US Dollar Index well above the 90 level which will create an economic disaster for the American economy as the export legs are kicked out from under us.
Lastly, the one market which I think is telling the world that “Houston, we have a problem,” is not in Europe’s ruins or the computer gamed world of Wall Street but in China. The Shanghai exchange is warning that the deflationary pressures are not a mirage and indeed that prices must correct to natural levels or central banks must hyperinflate their currencies to avoid this world wide correction. When, not if, the Shanghai markets collapse below the 1900 price level then indeed we could witness carnage across equity and commodity markets with littlehope of a short term rebound.
Buckle up folks, H2 is going to be a bumpy ride.