Just A Theory

The markets were down to end the week. RIMM hurt the NASDAQ Complex. Dell helped with their brainless buy of Perot Systems. Crude tumbled because everyone including your mother is storing it in their backyards. Durable goods orders also disappointed this morning. Housing...Well Housing still sucks.

Some good. Mostly bad. So why did the markets not trade down any further? Quite simply stated, many are still not convinced that the rally is for real. Many are shorting into this rally. Portfolio insurance is quite cheap as volatility has sunk to lows. So whats happening is all of the major Wall Street Dealers(JP, CSFB, GS, MS, BAC, C) are just pairing off trader/investor short bets, and then ripping stocks higher. Too many people are predicting the markets to collapse, thus the real players are contra moving the market.

The markets look great technically, overextended yes, but the trend is still up. I don't see the market collapsing unless we get even more bad macro data. We have September non farm payroll data next Friday which will give us a clue of what the next direction in the markets will be.

Currently there is some 450 stocks in the SPX trading above its 200 DMA. This is a ludicrously strong figure. The upward parabolic move in both this figure and the market in general is beyond belief.

My personal feeling is that we will see a significant correction before the end of the year. This correction will be in the 15-20% area. But that correction wont happen until we move nicely above 10K on the DJIA, and 1125-1175 on the SPX.

I think the market does nothing until next Friday, when we probably get a decent payroll print. After this, the market continues to go higher and eventually fills the September 2008 gap up to the high 1125-1175 area, but that is going to be on weakening overall strength and breadth because the market has shot up so insanely already and like I said some 450 of 500 SPX names are already above their 200 DMA. By this time the overall rally will be a breathtaking 75% off the lows and almost everyone will be sure and convinced that this is a new bull market. It will be like today, but with the SPX some 100-125 points higher. This rally precipitated by next Fridays payroll data announcement will be the public/retail investor coming back on board as the message that the economic recovery is here gets filtered into everyone's psyche. All of the professionals are already fully invested at the moment. As the market accelerates upwards the public/retail investor gets in just in time for the market to begin moving lower again. You can bet that Goldman Sachs and the forty thieves will be parking themselves on the offer side of the market, printing stocks and banking profits all the way higher.

Bag holders of the world will be reunited.

Just a theory of mine.