Did Stocks Peak September 17 When We Asked If Rally Was Over?

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 |  Includes: SPY
by: TrimTabs

By Charles Biderman

Back on Monday, September 17, when the S&P 500 closed at 1461, which was 15% higher than the June 4 low of 1278, I asked if a 20% pop in stock prices was the most we could expect from the Fed easing announced the prior Thursday, September 14. It now looks as if I was right about the limitations of the Fed easing, and only a little too optimistic about its effect on the market. Excuse me for a second while I pat myself on the back.

So far the S&P 500 has not made it past that Monday’s high and indeed closed Tuesday, Sept 25, down 1.4% to below 1442.

To recap, I had been saying that Fed easings only help the stock and bond markets and have a marginal impact on the overall economy. For example TrimTabs Macroeconomist Madeline Schnapp reported the other day that wage and salary growth is accelerating. Yes, the gain in incomes since June is $133 billion annualized. Compare that $133 billion with $500 billion in annualized rate of Fed money printing earlier this year. Not very productive printing $500 billion to get a $133 billion pop in income.

Meanwhile the real impact of the easings has been on stock valuations. For example, the first easing boosted the market value of all U.S. stocks by about $4.6 trillion. The second easing raised values by about $3.5 trillion, as did the third easing. And so far the current easing has raised market cap by just over $2 trillion. Subtracting the intervening declines, the market value of all U.S. stocks is up by $10 trillion since the first easing in March 2009. That is why all of Wall Street genuflects before the Central Bank.

If the market keeps dropping, I plan to increase my shorts and sell some of my longs.

Some of you who watched the latest video of Madeline Schnapps reporting on accelerating wage and salary growth might wonder why I would increase my shorts. The reality is the stock market did not go up from June through last week based upon any expectations of a growing economy or growing earnings. Stocks went up solely due to the religious like belief that if the Fed eases stocks have to go up. Obviously the easings cannot work forever evidenced by the fact that they have become less effective. Indeed as the third quarter ends, we may see a sharp sell-off as panicked bulls rush to salvage their trading profits.

Remember the Biderman Market Theory has two key points. First, all there is in the stock market are shares of stock. Two, the house has a built-in advantage in all markets, from the stock market to the corner market. The house in the stock market are the public companies, and they know more than us investors. Public companies have sold $17 billion more shares so far in September than they have bought. That is even more than the $15 billion net shares sold in May of this year.

What’s more, for the second consecutive month, insiders continue to sell 11 times more shares than they are buying. And, the last time insiders sold 11 times more shares than they bought over a two-month period was in April and May of this year – right at the top.

If stocks sell off even though the Fed has announced a perpetual easing, the decline could be brutal. What could stop it? Certainly not declining Q3 earnings and lower Q4 estimates, which major selling by insiders and companies appear to be predicting.

Meanwhile, stocks are likely to keep dropping until insiders and companies become buyers instead of sellers.