I haven't been able to make much sense of the market recently but today I found something that was interesting regarding the technicals.
Check out this trader who is one of the big S&P players in the pits. He explains that the market is looking to roar back up to S&P 1100 in order to fill a gap from last Sept. when the market collapsed.
I thought this was some excellent insight:
I haven't seen the market this bullish in a long time. This is very often followed by a large correction. Everyone now thinks the recession is over. We all know this is utter horse****.
The news continues to get worse. Everywhere I go right now whether it be a restaurant, a retail store, or a bar is completely empty. As far as I am concerned, we are in a depression right now as we speak. I had a cab driver in the city tell me that he routinely made $400 on an average Saturday night a few years ago. He said today he is lucky if he makes $150.
I see nobody out anywhere! It actually creeps me out. Sometimes I feel like Will Smith from that movie "I am Legend" where the world gets wiped out by a massive plague.
Speaking of spooky: There is now some frightening data out there showing that the delinquency rates on FHA loans is now over 20%. It appears to me that FHA is nothing more then another Freddie/Fannie housing bubble.
Folks, you can't expect people to pay loans back when they only put 3% down. Most of these buyers have no business owning a house. They are renters disguised as home buyers!
I wouldn't even think of buying a house until this Ponzi lending goes back to "old school" standards which is 20% down with a DTI(debt to income) of 36% or less. When FHA blows up(and based on these delinquency rates it most assuredly will) I believe you will finally see lending get back to where it needs to be.
The problem is when this FHA blowup finally occurs, housing prices will once again plummet because who has 20% to put down on a house? Just about 20% of this country isn't working! Many can't even afford to put food on the table right now!
In the bubble areas many homes still sell for 500k in the nice burbs. Who in the hell has 100k to drop on a down payment for one of these crapbox McMansions at a time in which the economy is imploding?
Higher end housing is totally screwed. Jumbo loans are now unaffordable in this new world of higher interest rates for large loans. The banks don't want to lend huge sums of money, period! The risk for losses is simply too high!
The Bottom Line
Will 1100 be the level where stocks roll over? I really have no idea right now. I like the above trader's premise though. I'll be honest: I can't invest long or short when I don't understand what the market is doing. I can remember Warren Buffet saying the exact thing about tech stocks. He avoided the whole sector because he didn't understand it.
In the long run this was a very prudent and wise decision. The one thing that I do know is that the dollar is collapsing because we are carrying trillions in debt. I will stay in metals in order to protect myself from a potential collapse in the dollar.
Could the Fed raise rates in order to prop up the dollar? Yes, but they will destroy housing and the rest of the economy in the process. I don't think the Fed has the balls to do this.
If they do then gold and silver could get crushed. The odds in my view are that the gutless Fed will do nothing and continue to keep this debt bubble propped up.
If I see signs of this changing, I will sell off some of my metal protection and take some profits. For the most part I sit here in cash and bonds until things make sense.
In general my take on the economy is this: I am VERY scared. I am starting to see no way out without severe pain.