Hello fellow traders from all around the universe ! I got news for you !
Next week will probably mark an important,if not major, peak in the equity markets ! Next week all eyes will be on the FOMC meeting, the release of QE2,mid term elections and the employment situation ! Talking about a pivotal week eh ?
My approach to this coming week is probably simplistic but rather effective !
You see, i believe that human behavior in financial markets are only driven by fear and greed. Most of you were talking abouth the Fed moving the markets,the P.P.T, the POMO days and so forth. This is plain B.S !
Honestly.. if there was ever a P.P.T why would have the 2008 crash occured ?
Barron's doesn't have covers of Bulls and Bears cartoons that often ! It's pretty rare but very telling about how investors are feeling.
You want proof ?
On March 6th 2009 on the cover of Barron's you had a Bull crushed on the floor (Click Here).
-The week that followed marked a major turning point for equities as the Markets rallied in the most violent cyclical bull of all times !
On April 24 th 2010, there was a Barron's cover about a Bear being crushed by a bus with a 12.000 target on the Dow Jones ! I even made a special post on that matter (Click Here)
-The week that followed marked a major turning point with a "flash crash" that led to a 20% correction for the S&P 500 in the following 3 months.
It only gets better, yesterday, there was a Bear on the edge of a cliff with a "Bye Bye Bear" as the title of the cartoon!
Now unless you are mentally disabled or have a Paris Hilton I.Q you would probably know what comes next week !
Here is a chart that should give you a hint :
In addition to this the AAII Sentiment Survey had :
+ 29 % Bulls in the week of March 15 th 2009 !
+ 49% Bulls in the last week of April 15 th 2010 !
+ 51 % Bulls last week !
The cherry on top is the Mutual Fund Cash Levels :
Here is a long term chart of US Mutual fund cash levels vs the S&P 500.I've drawn a support line for the Mutual fund cash levels in red ranging from the 1950's up to end of 2010.
Several observations come to mind:
1) Mutual cash levels have never been so low in over 50 years !
2) There were 5 instances where Mutual Cash levels were below or at 4%, i've marked these instances in green !
3) Every time Mutual fund cash levels have touched this red support line it resulted in substantial declines in the S&P 500 lasting more than a year (Highlighted in red).
4) What is even more compelling is that the declines in the S&P 500 are getting bigger and bigger as the Mutual Fund cash levels bounces along my declining red support line !
Conclusion : I would not be surprised to see a substantial decline (-30% or more) in the S&P 500 starting soon and lasting more than one year ..... unless of course The Fed acts as the biggest Mutual Fund in America
You can see my long term approach to this Secular Bear Market (Click Here)
IMHO, the Bears will strike Back .. and the strike is right around the corner !