Market observations - Back Test Time

I would like to reiterate that there are gaps on the ES that need to fill in the 1074 area...In my opinion we have to test that area or exceed it. It is entirely possible that the market fails to make a new high and instead confirms wave 2 for our impulse wave down. This could be fulfilled with a move to the 1077 area on the SPX cash.

As you can see the VIX has made another attempt to break its down trendline. This is accompanied by a MACD cross and RSI over 50...something to keep a close eye on...VIX is currently only backtesting this trendline...it could drop below it again...or preferably consolidate and rally straight from here.

Transports had their huge sell day last week...the largest volume selling day in the $TRAN history. If the markets do continue up...into the Oct 2 to 7th area...any new high will not likely be confirmed by the $TRAN. This is a very good cue that these highs will be a top of consequence.

Oil is at an important support...and with the dollar showing strength today...it could easily break the down-trend line and take a quick trip to 57. The alternate view is that the dollar needs a consolidation and will allow for some upside for Oil - though that should not amount to much.

Agriculture commodities are struggling and remain below the emerging 2-4 line of the pattern...a break of that huge support line below will likely coincide with a strong move down. Upside looks like it would be quite limited...and this chart does not look healthy at all.

The dow could get its legs, in fact it has to tomorrow...otherwise this whole pattern, VIX, Trans and DJ look like simple backtests of resistance. Personally, I think there is some remaining upside...though nothing substantial.

Faber speaks with forked tongue

On the 22 of September Faber said this:

"Now we have a particular situation in the US whereby interest rates are at zero and the fed has made statements whereby they will not increase interest rates much. They will keep them below the rate of inflation. In this environment the worst investment, of course, is to be in cash, in the long-run, or be, even worse in US government bonds. What you want to be is in assets, whether it be real estate, commodities or in equities. And ideally, of course, you are in foreign currencies or a currency that can not be increased in its supply, like gold, silver, platinum, palladium etc."

 ..."my view is, probably over the next 2, 3 years you are better off being in equities"

It is clear that these statements can not be misinterpreted. I can find no other way to understand the statements above than he foresees a total collapse of the dollar and explosive inflation in the long-run. While I agree, inflation will likely be a problem at some point. It is likely 4 to 6 years away. Anyone who takes the Faber trade will be broke by then, yet Faber may still try to say - "I was right". Again, I think that his views are irresponsible and dangerous.

Currently he is saying:

“I wouldn’t be surprised if we’d seen the peak of the market for this year because the economic news isn’t going to improve very much. The correction in the market has been overdue for quite some time.”

A correction is not deflation...and a pullback in Gold is not deflation. He is looking for pullbacks. And, in my opinion the stated basis for a pullback is pretty flimsy at best. I would much prefer him to state some technical reason...absense of good news does not drive prices one way or the other. If absence of bad news were to drive prices then this bear market rally would not have been possible. Faber looks pretty confused and disoriented. I can understand that, this market is not rational (and no market is), but the smarter you are the more you try to rationalize it. This is why Faber is missing the big picture...he is trying to come up with a nice rational and intellectually stimulating story or thesis. That is, by the way, a great way to be entertained...but definitely not a great way to make money.

A dollar crash and inflation fit into a very marketable story... probably you can get a lot more signups for $200 if you use that story than a huge dollar rally and epic deflation.

What we will likely get in my opinion is not a pullback, but a resumption of the trend. Just look at that real estate chart that I posted previously. We have a way's to go before we even get to wave 4. And, Faber absolutely recommends real estate assets in the above video.