Ben Beach Ball

Bazooka Ben was not shy about promoting his QE pump priming program.  He sees no side effects, and thinks he can exit anytime.  He has blown a gigantic beach ball bubble and it will not pop until you see a successful peasant revolt against rich man economics.  Considering how the 99% got nowhere with their protests, it will likely never happen.

There is no sustained correction until you see more equity supply.  There just aren't enough IPOs and secondaries to meet the demand for equities coming from the POMO to equities flow.  However, I don't see us making a break much higher, because of the lack of retail participation.  We may only be able to get to 1550.  To get to new all time SPX highs, you need retail to buy into the equities theme, but the economy is just not strong enough to make that happen.  No matter how strong the uptrend is, retail will not pile in unless the economy gets much stronger.  That is not going to happen.  

I expected a rally, but not one as strong as the one we saw yesterday.  I figured we'd stop at 1510 and take a pause, but we went straight for 1520.  Trying to short this market is like trying to keep a beach ball underwater.  There is so much air put in by the central banks, the thing can't stay down.  It naturally lifts higher, the free money in all corners of the globe providing the fuel.  We may dip down to 1510 but I don't see another trip down to 1485 anytime soon.  We should hit 52 week highs by next week.

European Jason

It is the undead.  Europe.  Just when you think it went away it comes back.  The same script has been used over and over, and the market still gets spooked.  It is like a cheap horror film where you know when the scary scene comes, but most of the audience gets scared anyway. This time, the Italian election is supposed to make us want to sell all risk assets and temporarily hide in a bunker until the all clear sign.

The Italians are not suicidal.  If they leave the Euro, it will be like suicide bombers running around in downtown Milan.  They will not leave.  Isn't this what we're all supposed to be scared of?  That somehow the wrong politician gets elected and they decide to screw austerity and those stipulations for free money and say FU to Merkel?  This panic will pass quickly.  I am more worried about other things, more fundamental to the market, like higher taxes and lower government spending, not Berlusconi as a Jason replacement in Friday the 13th. 

4 SPX Points

From the number of newly formed bears coming out on CNBC (the world renowned Gartman among them) you would think we were down a whole lot more than 4 points this week.  It is a blip in the monster uptrend.  The dip on Wednesday and Thursday was one that refreshes.  It got rid of the weak hands like the Gartmans of the world, and replaced them with stronger hands.  The stronger hands who have to get in and stay in for fear of being left behind, underperforming the stock index again.

This week's action actually has made me more bullish, not less.  We had heavy volume on Wednesday and Thursday selloffs, with a strong reversal to the upside.  Extremely bullish action.  Looking for new highs in March. 

Ignore the Fear Mongering

Yesterday was quite an interesting day.  The volatility finally picked up thanks to gold, oil, and the Fed minutes.  I don't believe for one second that they will remove QE until you get a big improvement in the economy.  A big improvement in the economy would lower the budget deficit and put less pressure on the Fed to monetize the growing government debt.  But I don't see the economy making a big improvement so I am forecasting endless QE. 

It is never about inflation with the FOMC.  They never tightened when you had rampant inflation in 2007 and early 2008 so do you think they will tighten just because of rising  inflation?  Fat chance.

The selling in gold yesterday was quite panicky, and I see a strong bounce from the lows to above 1600.  And I am still a raging bull on the SPX.  Today is probably the day to buy the weakness looking to sell next week for a quick 20 pointer.  Forget the fear mongers using Fed minutes / Italian elections as an excuse to sell.  You have to buy these dips.  They will not last long.  

Just Another New High

You cannot doubt this market.  Even the USDJPY can't keep up with this S&P bull.  It is the strongest in the world.  Europe can't stop it.  Wal Mart can't stop it.  Post Opex can't stop it.  Unstoppable.  Not much to say, it's just a super bull and it will die hard. 

Shooting after Paulson

The lack of volatility in the S&P has me looking at other markets, and gold is one of those.  We are getting close to a buy area for gold, the question is whether it is a buy for a short term trade or a long term trade. 

Gold is in liquidation mode right now.  The sharks are circling around John Paulson, with gold going down with stocks going up, Paulson's huge gold position is looking worse and worse.  It would be a good sign for gold bulls if Paulson gets out and the sharks no longer have a target. 

Gold is swayed more by sentiment than fundamentals.  Investor flows are the primary driver and it seems like we're close to a point where the sentiment is capable of turning quickly.  The S&P should continue to grind higher but I don't think that will be a negative for gold going forward, it could just set up a rush for commodities for fear of inflation. 

Micro Dips

We are not getting any big dips.  We are getting at most 10-15 point pullbacks and they are raging buys.  Raging.  If you don't buy reflexively, this bull market will already leave you in the dust and go higher.  We got the premarket raging buy down at 1510 and it was snapped up in a hurry.  European weakness was the excuse for the selling.  The U.S. could care less about Europe, it is on its own mission.  The best house in a bad neighborhood. 

Corporate buybacks and M&A deals are still supporting this market after the inflows have died down.  We need to get to higher prices before enough supply can stop this uptrend.  Until then, buy at any price.  You will be able to sell higher within a few days.

Benign Time

This is a very forgiving market if you are a bull following the trend.  If you are a bull who wants to wait for a "pullback", or buy on the cheap, you have been out of luck. It is a time where the market will not go down much, because the herd is still moving towards risky assets.  The migration protects a bullish trader against big down moves, because there is a big supply of "wait for a pullback" bulls looking to get in on any dip.

We are still in the middle of the migration.  The selloffs don't last more than a day.  And they don't linger at lows, they bounce right back later in the day or the next day.  This market is not giving you much time to buy low.  It is giving you a lot of time to buy high.  This is the time to be a fearless bull, not when you get your nice convenient pullback but with toppy action. The most bullish two markets I see right now are U.S. stocks and the USDJPY (short yen).  Get long at any price.  You are safe for at least the remainder of the month.

S&P Superman

It is like it has always been.  Europe lagging.  Same with emerging markets.  And U.S. leading.  AGAIN.  A 5% drop in the Eurostoxx index couldn't even keep the U.S. market down more than 1%.  At that rate, in order to enter a bear market of a 20% fall in U.S. equities, Eurostoxx would have to drop to zero. 

It is uncanny how strong this S&P is, it's made of Teflon impervious to major weakness even in one of its biggest component, AAPL.  A whole continent dropping 5% at the drop of a dime barely makes this S&P flinch.  There really must have been huge pent up demand after the fiscal cliff to enter equities.  And there isn't enough supply out there, with big companies going private (Dell), fund outflows turning into inflows, weak data which keeps Fed at $85B/month bond buys till infinity, and corporations still levering up to buy their own stock, because they think low interest rate money is a great way to pad their stock prices. 

Europe has the ECB, which is a liquidity scarecrow compared to the money orgy going on at the Fed.  The clowns at the Fed probably think they need to pump even more money in there because long term bond rates aren't low enough for them!  All this during a backdrop of flattening earnings and higher taxes.  Fundamentally we shouldn't be going up, but supply and demand trumps all, just like it did in the late 90s and in 2006-2007.

Yes, we are seeing more volatility while going sideways and that usually means that a trend is changing but with Europe already down so much, I don't see how Europe can take the U.S. down.  Unless Europe goes into the toilet again and panics, I don't see ES below 1490.  And with Draghi, financial panic has been eliminated in Europe.  Expect a steady grind higher for the next 2 weeks.  We still got a ways to go before a top is made. 

Strong Uptrend

In 2011 and 2012, trend following funds produced bad returns while the S&P rose considerably during that period.  Like many strategies that lose effectiveness when they become too popular and crowded, the tide seems to have turned back into favorable trend following markets. 

The USDJPY uptrend since last fall is a classic example of trends returning.  The S&P is another.  The S&P has traded in a strong uptrend with hardly any pullbacks.  The markets have transformed into fearless trending markets.  The central bank puts in place have a lot to do with the fearlessness.  If you take out tail risks and dampen volatility, funds will take that as an invitation to lever up and chase equities.  That is what is happening right now and we have a long ways to go, since this has only started in earnest from January 2. 

You will be surprised how high this market goes and how strong it is.  The fundamentals only serve to build a wall of worry.  If the last 4 years in the market have taught traders one thing, it is that the stock market and the economy are two totally different animals.  The best markets to be long are strong uptrends where the Fed is on your side. 

Strong markets do not let you in unless you pay up.  Today is another example, if you didn't get long yesterday, you have to pay up on this gap or risk being left behind. 

Europe Lagging

When I have I seen this before?  Usually when Europe starts lagging its only a matter of time before that starts weighing on the US and its market.  That is what happened in the past, but are we now crashproof with QE infinity?  Yes.  We are crash proof now.  It means there will be no financial panic.

I see gold price action as typical of an asset that is no longer loved, but still clinging to hopes of the past.  Gold will go lower, probably to at least 1620 soon.  

We are going higher from here, just hold your nose and buy.  We have pullback protection till options expiration on Feb 15.  So we ain't going down more than 2% till then.  If we see this year's version of panic, we could get down to 1490.  IF.  I doubt it, though, we'll just grind higher. 

Overflowing with Liquidity

Everything is going up.  We get a number close to consensus and everyone is happy.  Bonds going up, stocks going up, gold going up.  All assets are rising.  Bond supply doesn't matter because Fed buys up all of it.  It is no coincidence that the US has a 1 trillion dollar budget deficit and Fed is buying 1 trillion per year in bonds. 

There will be no correction until we reach high enough levels to bring out enough equity supply.  It might not happen till we get to the all time highs at 1575.