Graham Summers’ Weekly Market Forecast (waiting on the Fed)

Posted by: Phoenix Capital Research Post date: 11/01/2010 – 10:40 Remember, much of the market rally from early September has hinged on the belief that the Fed will announce a large QE 2 program this Wednesday. For months the Fed leaked information that this was likely to be the case. We also received forecasts from Wall Street (specifically Morgan Stanley and Goldman Sachs) stating that QE 2 ranging from $1-4 trillion was coming in November. Navigation PollsDonate To Zero HedgeRecent posts Shopping cart View your shopping cart. User login Username: * Password: * Create new accountRequest new password Zero Hedge Reads Angry BearBearish NewsBoom Bust BlogChina Financial MarketsChris Martenson’s BlogContrary InvestorCoyote BlogCredit WritedownsDaily CapitalistDaneric’s Elliott WavesDealBookDealbreakerDr. Housing BubbleFalkenblogFibozachiFund My Mutal FundGains Pains & CapitalGlobal Economic AnalysisGonzalo LiraImplode-ExplodeInfectious GreedInvesting ContrarianJesse’s Café Américain Market FollyMax KeiserMinyanvilleMises InstituteNaked CapitalismOf Two MindsOilPrice.comPension PulseShanky’s TechBlogThe Daily CruxThe Mad Hedge Fund TraderThe Market TickerThe Technical TakeThe Underground InvestorWall St. Cheat SheetWashington’s BlogWealth.netWhen Genius Prevailed Home Phoenix Capital Research's picture Submitted by Phoenix Capital Research on 11/01/2010 10:40 -0500

Ben BernankeGoldman SachsMarket CrashMorgan StanleyRealityTrade WarsWall Street Journal

It allhappens this week.

 

This week,we have Congressional elections on Tuesday and the Fed’s FOMC announcement onWednesday. Both of these events have MAJOR implications for the markets this weekand going forward.

 

Remember,much of the market rally from early September has hinged on the belief that theFed will announce a large QE 2 program this Wednesday. For months the Fedleaked information that this was likely to be the case. We also receivedforecasts from Wall Street (specifically Morgan Stanley and Goldman Sachs)stating that QE 2 ranging from $1-4 trillion was coming in November.

 

And yet, thestory has changed several times. Indeed, last week we had TWO major plottwists. The first was a Wall StreetJournal story by Ben Bernanke’s “leak” of choice, Jon Hilsenrath statingthat the Fed was likely to unveil a small continued QE 2 program as opposed tothe consensus-expectation of $1-2 trillion.

 

This seemedto indicate the Fed was trying to cool QE 2 expectations ahead of time in orderto stave off a Market Crash when QE 2 disappointed. Stocks did the obviousthing given that more money= rally and less money =collapse. And once again, itwas obvious “someone” got the news before the rest of us (notice stocks fellhard Monday and Tuesday BEFORE the WSJ story was public)

 

 

But then theFed did a total 180 and announced it would be surveying its Primary Dealers (18mega-banks including most of Wall Street) for suggestions on how big and how longQE 2 would run. This strengthened the view that a MASSIVE ($1+ trillion) QE 2option was still on the table and stocks spiked up on Thursday’s open. Sincethen, we’ve been trading sideways.

 

Indeed,while the above paragraphs make it sound as though stocks have been quiteactive, the reality is that the S&P 500 has been trading sideways forseveral weeks now. On the five minute chart, we have what looks like apotential triangle pattern forming (in red below)… however, this pattern is notnearly as convincing as the general trading range between 1170 and 1190 (inblack).

 

Indeed, theBig Picture this week is much the same as last and the one before. The S&P500 has been in a HUGE trading range since May. It’s recently come up againstthe top of this range at 1,190 which has served as MAJOR resistance as itcoincides with both former support for the April 2010 top AND the 200-weekmoving average.

 

 

I mentionedthe significant of the 200-week moving average in last week’s forecast. Thisline stopped the stock rally dead in its tracks in April 2010. Right now itlooks to be doing the same (a weekly chart of the S&P 500 with its 200-weekmoving average is drawn in below):

 

 

How willthis all play out? I honestly don’t know. The Fed’s change in attitude lastweek has left many investors scratching their heads as to what exactly the Fedintends to announce this week with QE 2.

 

However, theimplications of whatever the Fed does are already clear.

 

1.  If the Fed DOESN’T announce ANY QE 2 programthis week, stocks will Crash.

 

2.  If the Fed announces a small or disappointing QE2 program this week, stocks will fall, but not collapse, as the US Dollarrallies.

 

3.  If the Fed announced a HUGE QE 2 program thisweek, then stocks will explode while the US Dollar tanks and Gold goesvertical. This move will also intensify the global currency and trade wars andlead to a horrendous worsening of the US’s already fragile economy.

 

None ofthese options are particularly attractive, but number three is absolutely theWORST choice. Indeed, my biggest concern going forward is that the Fed might bestupid enough to actually do it (the Fed survey of Primary Dealers last weekstrongly hints at this).

 

My bestsuggestion this week is to stay clear of the market. There are simply too manyfactors at work (all of them with MAJOR implications for the markets) for safeinvesting. So it’s best to keep on the sidelines and let the debris clearbefore putting any capital to work.

 

After all,one thing is absolutely clear, “someone” will know the Fed’s decision longbefore us mere mortals.

 

GoodInvesting!

 

GrahamSummers

 

PS. Ifyou’re worried about the future of the stock market and have yet to take stepsto prepare for the Second Round of the Financial Crisis… I highly suggest youdownload my FREE Special Report specifying exactly how to prepare for what’s tocome.

 

I call it The Financial Crisis “Round Two” SurvivalKit. And its 17 pages contain a wealth of information about portfolioprotection, which investments to own and how to take out Catastrophe Insuranceon the stock market (this “insurance” paid out triple digit gains in the Autumnof 2008).

 

Again, thisis all 100% FREE. To pick up your copy today, got to http://www.gainspainscapital.comand click on FREE REPORTS.

 

 

 

 

 

 

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by Vampyroteuthis …
on Mon, 11/01/2010 – 12:51
#691097

If the Fed announced a HUGE QE 2 program this week, then stocks will explode while the US Dollar tanks and Gold goes vertical. This move will also intensify the global currency and trade wars and lead to a horrendous worsening of the US’s already fragile economy.

Future result, market crash!

Login or register to post comments by Cruel Aid
on Mon, 11/01/2010 – 13:01
#691114

He’ll pick # 2, because a stable, falsely propped up market is a happy market if you’re trying to buy time and you’re lost you don’t want to make any sudden moves. It’s about stability.

Login or register to post comments by SheepDog-One
on Mon, 11/01/2010 – 13:27
#691215

The last thing Bernanke wants is a rallying dollar though. Anything he does has to prevent that.

Login or register to post comments by Cruel Aid
on Mon, 11/01/2010 – 14:01
#691308

Maybe somewhere in the range of 2.25/ 2.5. This is his tightrope, as in, he doesn’t know what is baked in and what is a tipping point. Seems like he is into the art of this calculation. Either way, “We’re waiting…  Well”- Judge Smails

Login or register to post comments by SheepDog-One
on Mon, 11/01/2010 – 14:13
#691335

Looks to me like Bernanke baked in a diamond encrusted $4 trillion, and now wants to deliver a sub $500 billion number. The bloodbath tantrum Wall St throws will be epic.

I want a cheeseburger, french fries….YOULL GET NOTHING AND LIKE IT!!  Judge Smails.

Login or register to post comments by Cleanclog
on Mon, 11/01/2010 – 14:26
#691379

Meanwhile, the CNBC shills tout $1/2 Trillion as what street expects and will be satisfied with. While GS suggests $4Tr needed to make any meaningful impact.  

Watch out below!!

Login or register to post comments by Sudden Debt
on Mon, 11/01/2010 – 13:17
#691171

Why would 3 be bad? Why not just get it over with?

This is what the economy needs. Only then will the debt problems get a chance of being solved?

Login or register to post comments by SheepDog-One
on Mon, 11/01/2010 – 13:28
#691220

Yes…yes I see your point…KILL the patient in order to SAVE the patient! 

Login or register to post comments by blindman
on Mon, 11/01/2010 – 13:32
#691231

forget the patient, kill the physician.  the bastard

bled george washington to death for christ sake!

Login or register to post comments by RockyRacoon
on Mon, 11/01/2010 – 14:12
#691336

“We had to destroy the village in order to save it.”

Login or register to post comments by blindman
on Mon, 11/01/2010 – 13:22
#691198

end the fed.

.

Thomas  Jefferson said in 1802:
‘I believe that 
banking institutions are more dangerous to 
our liberties than standing armies. 
If the American people ever allow 
private banks to control the issue of their 
currency, first by inflation, then by 
deflation, the banks and corporations that will 
grow up around the banks will deprive the people 
of all property – until their children 
wake-up homeless on the continent their fathers 
conquered.’

Login or register to post comments by SheepDog-One
on Mon, 11/01/2010 – 13:31
#691205

‘$1 to $4 trillion was baked in since Sept 1 run’….so $4 trillion then is the number baked in, probably already leveraged at least 20X, so unless Bernanke tops a $4 trillion Q/E announcement on Wednesday, a whole lot has to be removed from this overbuilt pyramid scheme.

I think Big Dumb Ben announces $100 billion in bond purchases x-month, which no one gives a flyin fuk about (it was all about diamond encrusted QE trillions) and we remove about 1,500 points on the DOW…if the brakes hold.

Could also very well be elections are derailed, and nothing at all happens on Wed. as the nation is in chaos under martial law from coordinated terrorist attacks.

Depend on nothing at this point.

Login or register to post comments by JimboJammer
on Mon, 11/01/2010 – 13:26
#691213

Abe  Lincoln   would  roll  over  in  his  grave…

End  the  Fed…

Login or register to post comments by max2205
on Mon, 11/01/2010 – 13:31
#691221

Since the run on money markets, when did Ben ever NOT so what the Markets want?

Login or register to post comments by SheepDog-One
on Mon, 11/01/2010 – 13:33
#691233

Right up till he didnt, which is likely soon. This is a game so stupid now even Tylers retarded midget monkey in diapers wouldnt touch it.

Login or register to post comments by H. Perowne
on Mon, 11/01/2010 – 13:35
#691239

My prediction . . . pain.

Login or register to post comments by RockyRacoon
on Mon, 11/01/2010 – 14:13
#691339

My prediction . . . MORE pain.

There.  Fixed.

Login or register to post comments by SheepDog-One
on Mon, 11/01/2010 – 13:45
#691280

And the markets roll over from 100 points up on the DOW…to solidly red across all markets….on election eve. Prepare for max pain.

Login or register to post comments by TradingJoe
on Mon, 11/01/2010 – 14:28
#691380

Looks like I was right last week with my humble, non qualified prediction, markets will sell off no matter what the election or QE2 outcome will be! Buck was due for a rally, be it short in term then we’ll see again, too many crazy people making insane decisions, no way to go by the week, rather by the day(24H)! I could, though, stand corrected by the usual ‘sticksave”!!

Login or register to post comments by SheepDog-One
on Mon, 11/01/2010 – 14:14
#691344

Do you want to be the SuperSweet 16 year old’s parents when she was promised a new red Ferrari and unveiling reveals a used dinged up Honda Civic??

Login or register to post comments by brewcity12802
on Mon, 11/01/2010 – 14:16
#691352

I don’t believe the fed knows what’s it going to do yet, I think they are going to buy some time and buy 100 million or more over an extended period of time.

 

 

Login or register to post comments by blindman
on Mon, 11/01/2010 – 14:40
#691409

here is what they, the fed, will do.  until they are stopped!

.

Login or register to post comments by taraxias
on Mon, 11/01/2010 – 14:43
#691418

A long article just to say “I don’t know” therefore “I’m staying out”

Login or register to post comments by Temporalist
on Mon, 11/01/2010 – 14:43
#691420

Fed Likely to Announce $500 Billion of Purchases, Survey Shows

http://www.bloomberg.com/news/2010-11-01/fed-likely-to-announce-500-bill…

Login or register to post comments by deepsouthdoug
on Mon, 11/01/2010 – 14:50
#691435

Today’s reversal might suggest some traders may have the news as to what the Fed is going to do on Wed.

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