Economists Blow It Repeatedly
The market, once again this month, was obliterated. In a single session the indices lost nearly 4% and volume was high. Every equity index fell, and aside from Gold, Silver, Platinum, Bonds, Dollar and Coffee, every single commodity and currency was also annihilated.
Earlier in the week I cautioned what a difficult resistance area the 1250, and before that the 1220, zone would be to take back. I thought a decline from the 1220 zone would take SPX back to 1175, which would act as support. But yesterday SPX gapped down from 1193 and immediately hit the next support target area, 1155.
SPX was stable at 1155 before Philly Fed was announced at 10:00 A.M. But that stability soon disappeared. Once again the crack group (whom I'm beginning to think is on crack) of economists missed their estimate by a mile.
Regional Fed numbers are a big deal, and they tell market participants a lot about the current state of the economy. Economists had predicted that the Third Federal Reserve District would show 2, which indicates economic expansion. Instead the report showed negative 30.
Negative 30!
Not only did the economists miss by a mile, not only did they expect growth when the actual results showed a contraction, but that contraction was so severe that the last time the data was that negative was just before April 2009.
Put it another way: economists led you to believe that the economy was going to expand, when in fact, real data showed the kind of growth synonymous with recession.
It's outrageous that economists can be so wrong all the time. And that retail investors are stuck using bogus U.S. economic data that is completely revised (usually lower) in less than a month. In fact JPMorgan, which only a few weeks ago slashed U.S. growth estimates, cut growth estimates again this morning from 2.5% to 1% next quarter.
Remember, that is the second time that specific banks cut estimates in a few weeks, which means growth was expected to be over 3% only a few weeks ago. With all of their ties to businesses and the government, you expect me to believe that they were that wrong about the U.S. economy last month; yeah right. It's another great example of how the "little guy" is cheated by the system, and it's also the reason why I'm not a long term investing any longer; you can't trust expectations.
Of course the market took another big leg down after the horrendous Philly Fed, and slumped another 1% to 1134 after the report was released. But Thursday's decline was limited to 1331, and at 3:44 P.M. SPX nailed 1331.03 and rallied to close at 1140.56. The next support zone, which should put up a fight, is 1115 then 1100.
For those subscribers who are new to trading or this service, the market does not typically move this quickly. Resistance and support levels are generally respected on a daily basis, and only on a unique occasion will two or three be lost in a session - and rarely will a major area of support or resistance be lost in a session. But over the past month, the market has been able to chop through four or five support or resistance zone in hours, and sometimes even able to take out two areas of strong support.
Once again, the bears have taken the market far too low and far too quickly. I think 1115 could be retested today, and as I've mentioned before ultimately this month's low, 1101, will be breached. But following this week's decline, SPX, along with the rest of the indices will pump higher over the next few weeks. And while it should be choppy over the next few sessions, I favor a move up to 1197 again before a new major push lower.
Fear has spread across the globe this morning that the world economy will double dip. Most Asian indices were down 3% and Europe is being routed again this morning. Not only do the European investors fear a global recession they also fear insolvency of the banks. A weekend meeting among European policy makers looks likely, and I am long the euro in nticipation of positive news by next week.
The fear stemming from European indices adds to the only invincible asset left, gold. Last week I sent a special report around featuring 5 gold and silver miners to buy. We picked up KGI from that special report, and sold it Thursday for 19.1%, but the other four are still great buys right now. Make sure to download your copy if you have not already.
