Assumptions Are The Termites Of Relationships

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Henry Winkler

When the Federal Reserve began the Quantitative Easing, the banks, especially the CEOs, prospered the most. Banks were basically given free cash, but that did not necessarily translate to the bottom line-the rest of us!

Now, the Federal Reserve has nothing left-even if they stop the taper-which some are speculating they might do, where else is there to go? The last couple of years, since 2011, when the FED came in, the rates dropped and the market rallied.

Over the last year in 2013, rates basically flattened at their low levels. In 2014, the relationship has changed a bit. As rates firm, so does the market. Then, during each 2014 correction, including the current one, the dash to TLTs (20+ year treasuries) has become a flight to safety. In other words, rising rates and rising market meant the economy was improving.

Here is my theory, which from mostly everything I read is counter to popular belief. The Fed (already happening) loses control. The market could still drop hard, but rates will firm. Or, the relationship of low rates, Fed stimulus good for economy will shift to a Fed out of control and banks charging more money for what they lend.

Therefore, looking at the charts, (I can muse til the cows come. It’s the technical analysis that rules our entries and exits), the ultrashort or TBTs broke a long term channel on Friday. If they turn and clear that channel, we will be looking for at least, a temporary run in rates which could get even more extreme.

As far as equities are concerned, we have very little on as the market is in warning, getting oversold, but way too vulnerable to buy right here.

S&P 500 (SPY) Oversold in its confirmed warning phase. That’s the support-the oversold condition and on only certain relative strength indicators-not worth that much

Russell 2000 (IWM) Hit the 200 DMA. Will it stick? Stay tuned

Dow (DIA) confirmed warning phase also approaching oversold

Nasdaq (QQQ) Pretty close to the 200 DMA so have to assume it could get there like its small cap brother. What it does from there remains to be seen

XLF (Financials) Oversold on near term indicators and real close to the 200 DMA at 20.99

SMH (Semiconductors) Held the 50 DMA-as I have mentioned all year, the place to be first if the market firms

IYT (Transportation) Unconfirmed warning phase

IBB (Biotechnology) Broke the 200 DMA-and critical oversold indicators on the weekly chart

XRT (Retail) Have you ever come to my free webinar on phases? The cycle? From bullish to warning and now to distribution-have to assume things get worse before they get better

IYR (Real Estate) Another one still defending the 50 DMA

GLD Bull phase but not that interesting at least to me

USO (US Oil Fund) 37.74 the place to clear

TBT (Ultrashort Lehman 20+ Year Treasuries) An open over 65.70 will interest me-a close above will really interest me

FXI (China Large Cap Fund) Nasty gap below the 200 DMA which if not filled, could put pressure back here