The collision of global markets and social mood

Thursday, June 19, 2014

Janet And Jeff's Logic Problem, Plus Rampant Speculation

Janet let the world in on a little secret yesterday: the Fed lacks confidence in its policies just as much as we do. What is the logic, then, of continuing their policies?

And Jeff Bezos revealed that Amazon has a logic problem as well: because consumers are using mobile more and more to access Earth's largest marketplace, Amazon needs to build mobile phones.

This is like saying that because more and more people are filling up hybrids at Exxon-Mobil that Exxon-Mobil needs to build cars.

Such twisted logic can only survive in the current environment where "money is no object." Amazon can lose as much as it wants as long as it does so in a cool way. As long as the market is confident that the Fed can transmute worthless paper into a sea of liquidity, the dream can continue.

The same goes for the S&P, which had a pretty impressive turnaround yesterday and closed at an all-time record high.

Here are some charts, which luckily have their own logic.

Notice the next Fib confluence zone is 1973.72-1982.74.

What is great about the 1973.72-1982.74 zone is that it is confirmed by the arc below. The upper trend line of the wedge roughly targets this zone.

When the wave count is added, we find that the market may be in the final phases of wave 3 which would be confirmed by a corrective decline to wave 4.  Wave 5 would likely be a blow-off which could conclude above the upper trend line before a sharp reversal.

At yesterday's close, a beautiful Fibonacci confluence developed in the 1902.37-1905.86 zone that could be useful for a wave 4 target. Even if the market moves a few points higher into Friday (before Saturday's Summer Solstice -- the peak of the sun in the Northern hemisphere), this confluence zone would not be altered too much. The 1902-1905 area as well as the lower confluence level of 1868 would make perfect targets.

The upper confluence area (1970s) will remain a valid target until 1925.78 breaks.

And now for some outright speculation to end this post:

Should the above wedge scenario in chart 3 be the correct interpretation of the market, wave 5 could end the entire move from 2009 in late-summer and result in a 1987-style washout over 20% in a matter of days.

From a peak of 2,000 on the S&P, that could mean 1600. Perhaps a better target would be 1550, a backtest of the 2007 high.

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