I started writing this article on July 29. Half-way through, it was old news. And so on, until today. Indeed, I probably should shut up until “things” stabilize. The only reason I will give it a try is because my last calls were for S&P 1280 before 1350, and we have been there for three days now. What could happen next?
To recap, my July 28 article was about the Fortune Cookie Stock Market. When conventional analysis does not work, try something else and don’t take yourself too seriously. With the S&P at 1309 at 14:30 EST, I ventured 1280 before 1350 – a repeat of my July 17 call at S&P 1316. On the 18th, we hit an intraday low of 1295. On the 29, we hit 1282 for a close of 1292, confirmed on August 1 at 1275 for a close of 1287, and tested again today, August 2 between 9:30 and 10:50 EST. We decisively broke after that.
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The volatility of the May-July period has been extensively documented on the short-term. Technically, the pattern has been toppish since February. We have had three excuses so far: the earthquake in Japan, the European sovereign debt crisis, and our own debt crisis. All three are serious and valid ones. Now we are having “hard patch – v2." Is this what breaks the camel’s back, i.e. the trend in place since the low of July 2010, or even from March 2009?
With Japan, probably not. With a lag, rebuilding is taking place. Don’t look at Q2, it is not a question of when, it is happening now. A note here: the fact that Japanese public debt is 225% of GDP is neither a hindrance for growth, nor a reason for a downgrade, nor a threat to the yen. There may be a lesson to be drawn from
