What Happens When The Market Holds A Big Level

It rips.

Yesterday the market had the perfect excuse to break lower and crush the 1767.99 level. It couldn't do it. We're seeing what happens when that occurs. Futures are ripping higher.

The 1801 level, the 38% Fib retracement, is the first objective. Actually, the market needs to break above 1793.78 first to break the falling wedge structure, but if it can close above these levels, there is an interesting volume shelf around 1827-1830.

The Facebook had blow out earnings. It's up 18% in the pre-market which should ignite the animal spirits of the bulls. They are killing it in mobile advertising.

Elsewhere, The Telegraph in the UK is running a hard-hitting deflation story. World risks deflationary shock as BRICS puncture credit bubbles. It's a great title, and I fully agree.

Deflation is a word that central bankers do not like to even say. They choose to dance around it using language such as "inflation that is too low" or "an unwelcome fall in the rate of inflation."

Why do they do this? Because they know it begets a psychological phenomenon of waiting for lower prices, which exacerbates the problem. Therefore they do not want to even utter the word.

Those who think deflation is harmless should listen to the Bank of Japan's Haruhiko Kuroda, who has lived through 15 years of falling prices. Corporate profits dried up. Investment in technology atrophied. Innovation fizzled out. "It created a very negative mindset in Japan," he said.

The author asks "Why are they letting it happen?"

The answer is: because they have already lost the battle.