The S&P turned away, yet again, before it reached a normal Fibonacci retracement. The 38% retracement was 1302 on the cash index. It made it just over 1298. Now it's getting hammered. The target is now 1258. We'll see what happens there. I don't think it holds.
If it does, it will be very bullish.
As for the way the markets are acting today, I'll say it because no one else is.
Deflation.
Bernanke spooked the market not because he didn't hint at QE3, but because he admitted QE2 didn't work. To rub salt in the wound though, he went further. The admitted just how much the Fed fears deflation.
His predecessor, Alan Greenspan, wouldn't even utter the word. He'd use the words "an unwelcome drop in the rate of inflation." Bernanke came right out and said it.
First, he put out the disinformation: "We don't have a deflation threat anymore." This reminds me of a Jedi mind trick akin to saying "these aren't the droids you are looking for."
Then he laid it out flat:
"Many objective indicators suggested that deflation was a non trivial risk and I think that the securities purchases have been very successful in eliminating deflation risk. I don't think people appreciate necessarily that deflation can be a very pernicious situation where it could have very long-lasting effects on economic growth. "
He thinks it's been eliminated, but he's not sure. Asset prices sure are higher. Food prices for are higher. But has monetary velocity increased? No. That's why you see gold getting hammered today. Oil is getting creamed. The dollar is soaring along with treasuries. The market is saying risk is off. Deflation is on.
I realize this is an extremely contrarian opinion.
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