After a few weeks of sideways action the markets are once again pushing higher. Why do stocks refuse to go down? Well, who is going to sell and where is a seller supposed to put the cash if not in stocks? Bonds? Wine?
Zero interest rate programs are destroying the natural balance between stock and bond markets, and that will have some very painful results down the road. First, stocks will rise too high, possibly way too high. And then stocks will collapse. Instead of helping the economy, zero interest rates will have set the stage for an even bigger contraction. It will once again raise questions about the role of central banking. My take is this: as long as central bankers cannot forecast next month’s weather they should not try to manipulate next years’ climate. More on that on another occasion.
Let’s have our look at the Nasdaq chart (click for larger image):
The recent correction found support at the 4500 level, the July highs, and is now closing in on new highs for the year. Technically the Earl indicator has turned up, but the slower Earl2 is hesitating. It is still a rather mixed picture and we could be setting up some new bearish divergences on this rally. Time will tell.
We remain in a lunar green period this week. There is room for the Nasdaq to climb to 4700 and then we have to see what happens next. Many observers continue to wait/hope for some kind of correction. But we may not get it. I think there is at least 30% chance that the market will just push higher and climb above 5000 before we get any significant pullback. With September almost over, all eyes will be on October to deliver us the “crash”. That’s what sets the stage for a potential surge.