This is a breakout. Why am I not happy? As children say, the answer is "because."
First of all, a breakout (S&P over resistance at 1220) is not confirmed. Let's wait until Monday. Second problem, this time a bigger one: The Nasdaq composite did not break out over its resistance level of 2670. Not even close. If you look at the charts, during this depression Nasdaq was the leading index.
I will be happy if the market is going up. I will be extremely happy. After all, my long positions exceed my cash and fixed income positions. But I have serious reasons to be careful. Current action doesn't look like bull market action.
Exhibit one: earnings reports and reaction. Google (GOOG) beats by a mile, stock jumps the next day, no follow up. Intuitive Surgical (ISRG) beats, stock jumps the next day, no follow up. Same picture with Intel (INTC), and VMWare (VMW).
Exhibit two: The market still pretends to depend on Europe. Well, it's a good excuse for the market to not go up on great earnings. What would be the next excuse? And next after that?
Actually, Europe deserves extra deliberation. First of all, it's not going anywhere. Second, for better or for worse, the EU economy is bigger than the US economy. Now, cutting through the BS they feed us from all sides.. the EU is there to stay. There is no way to dissolve such a union, not right now, not in the near future. Eurozone, i.e. the currency union inside the EU, is there to stay as well. As much as Germans grumble, saving Eurozone is much (orders of magnitude) cheaper than dissolving it. Granted, currency unions of independent countries never survived long before. But Eurozone countries are not politically independent. They are part of the EU.
Currently they are coming to a kind of soft bankruptcy for Greece. They will need to recapitalize banks, to create some kind of loan mechanism which can't be killed by speculators. In a year or two we will see something like QE from the European Central Bank (ECB). They are moving slowly, but they are moving. They will not fall apart, as the price is way too high.
So, there is no end of the world coming from Europe. Why, or why am I not happy? Why don't I predict a huge bull market? Because we are in the Great Depression 2.0. Everything is moving faster now, so in 2008-2009 we quickly went through analogy of 1929-1932. The rally of 2009-2010 was quite like the rally of 1932-1936. Now we are in analogy of 1937. Everybody tells about austerity, savings, cost cutting. Nobody (that is, except for the Fed) is talking about stimulus. That's a huge mistake. We need stimulus. We need inflation. We need more debt, public and private. And everybody is talking austerity, cost cutting, deleveraging.
Unfortunately, the analogy ends right here. In 1942, the Great Depression was ended by a stimulus package also known as World War II. World War now is so scary, it's almost impossible. Even if it happens, it will be the end of the world, not a stimulus package. And the only modern depression known to us after WWII is going on for 22 years already without any sign of ending any time soon. I mean the Japanese Great Depression (1989 - ?).
That's why I am not happy. That's why I don't believe in any big rally. We might get to an S&P 1400 by the year end, sure. I will be a seller then. Because austerity is coming, and bear market is coming with it.
