Graham Summers’ Weekly Market Forecast (Currency Pairs Edition)

Phoenix Capital Research's picture Submitted by Phoenix Capital Research on 10/11/2010 11:08 -0500

Over thelast two weeks, I’ve called for a reversal in stocks. It seems I’ve completelyunderestimated the ability of the Federal Reserve and its Primary Dealers toramp the market higher on next to no volume.


Indeed,stocks have soared in the last six weeks, posting their best Septemberperformance in 71 years and rising roughly 12% from trough to peak. Thissurpasses even July’s monster rally of 11.1% from trough to peak, stands as themost aggressive rally since the April 2010 top.



However,beneath the surface of this massive move, the stock market shows the clearimprint of intervention and manipulation. Indeed, we have seen no fewer thansix gaps up during this rally. Gaps up are NOT a sign of a healthy robustmarket; they are sign of “behind the scenes” manipulation taking place in thefutures night session when market volume is low:



Aside fromthe gaps up, we also have the Federal Reserve’s Permanent Open MarketOperations (POMO), also know as its “QE lite” program. Rather than dress thisnonsense up in clever terminology, let’s just say it consists of the Feddishing billions of US Dollars to Wall Street banks, which subsequently rampthe stock market higher. The end result is that stocks have exploded higherwhile the US Dollar has collapsed:


Seeing allof this, my previous two weekly forecasts have called for a reversal in stocks.Suffice to say I’ve been wrong both weeks. The Fed has clearly gone “all in” onits “maintain stock levels at whatever cost” policy. And while stocks havebroken their trend line, they continue to rally in stair step fashion:



As I writethis on Sunday evening, the S&P 500 futures are rallying, signaling thatwe’ve likely got more of this madness coming this week. Indeed, until theEuro/US Dollar and Australian Dollar/ US Dollar pairs (which have become thetwo carry trades of choice for the markets) break their upward tradingchannels, the madness will likely continue:


The Euro/ USDollar pair:



TheAustralian Dollar/ US Dollar (pair):



With that inmind, keep your eyes on both of these pairs for signs of when the inevitablecollapse will begin for stocks. In the meantime, this week we’re likely to seea continuation of the same action we’ve seen in the last two weeks: stocksgradually rallying higher in stair step fashion with “the invisible hand”stepping in to prop the market up anytime we come close to a breakdown. Theonly thing that will change this is if the brutal economic realities choose toassert themselves globally. The European banking crisis continues to spreadwhile millions of European citizens have taken to the streets in protest of thevarious austerity measures being imposed.


On this sideof the pond, some 43 million Americans (13% of the total population) areofficially living in poverty. The jobs numbers are a joke and all talk ofrecovery has been manufactured via accounting gimmicks or full-scale fraud. I’mdetailing more of this in tomorrow’s article, but for the sake of this week’sforecast, I’m simply trying to point out that the US economy is on the brink offull-scale disaster and at some point (possibly this week) this reality couldhit the stock market.


In themeantime, having cleared 1,150 with conviction, the May high (1173) and then1200 are the next lines of resistance on the S&P 500. Support is at 1,150,1,140, and 1,120.



Good Investing!




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