By John Galt
October 6, 2011 – 05:30 ET
Welcome to the No Freaking Logic market today as the action in the U.S. markets defies logic and common sense with moves on light volume that should have completed the downward thrust with low volume exhaustion but instead reversed on the Bubblevision Rumor de Jour and now look to advance again towards the 50 DMA. Internally the markets look like a mess, technically they are still broken an in a bear cave below the 200 DMA, and one stock decided not to come out and play yesterday which was all the confirmation that I needed that the uptick in the markets won’t last much longer.
Goldman Sachs was down 29 cents yesterday on average volume which demonstrates to me the lack of conviction in this move and if it rolls over this afternoon, the markets will follow it.
Watch this chart from Yahoo Finance of GS (updates automatically; 15 min. delay in price) to get some idea as to what the broader market will be doing:
The one chart that is actually logical and indicating that there has been no miracle on ice in Europe is the Euro versus the Japanese Yen. If the rallies in Europe and the U.S. had the full faith and belief of the large money crowd an exit from this safety trade would be immediate and sharply reversing the current price levels around 102.
For today watch the S&P levels around 1164 which should provide stiff upside resistance although there is a chance the market could move to kiss the 50 day moving average and provide false hope to the permabulls and bullspreaders in the financial media. In the mean time, keep your powder dry because the real threat to the markets is not just the realization that the United States is in a recession, but that Europe is about to trigger a Lehmanesque derivatives collapse which despite the denials will indeed impact our banksters and financial system in ways the world could never have imagined.