Finally, another important milestone has arrived.  My perspective has been that The Powers That Be would keep the crap game afloat long enough to maintain the status quo come election time.  And, from all accounts, that’s exactly the case.

While there is plenty to be worried about, you’d never know it from the way the markets have performed.  The S&P 500 has rallied 121% since March 2009 and sits only 50 points away from its recent high which, itself, was only 100 points from an all-time high.

All it took was $16 trillion of deficit spending, a few trillion in quantitative easing, some serious arm-twisting overseas, and a Plunge Protection Team that paid very careful attention to chart patterns.

Some economists (and central bankers) maintain that these steps were necessary in order to free the economy from the worst recession since the Great Depression.  I maintain they were taken primarily to keep global banks from failing.  Ending the Great Recession is the hoped-for side effect.

In my opinion, the books of the world’s largest banks are being cooked (with central bankers’ blessings) to such an extent as to make their balance sheets and income statements a farce.  They are being allowed to carry distressed and dead assets at book value, and to report their trillions in derivatives as a matched book without providing any details to investors.

Why do I harp about government, Fed and bank balance sheets?  Because, in the end, they must be dealt with.  The enormous sums are somewhat manageable with historically low interest rates, a co-dependent regulatory environment and a complicit mainstream media.

But, eventually, the scales will tip.  The truth will out.  Simple arithmetic will once again be accepted and the severity of our situation acknowledged.    It won’t matter who’s in the White House or who controls Congress, because the damage will have been done.

In fact, it’s been done already.  And, it continues to worsen.  The key to higher stock prices isn’t whether everything is getting better.  It’s not.  The key is how much longer TPTB can catapult the propaganda.

 

 

While I enjoy making money in the markets as much as anyone, I am saddened by the circumstances that make the analog we’re following [see: A New Old Analog] possible, if not inevitable.

MARKET UPDATE: 10:15 AM

Guided by the current analog, we went long at 1405 on the 25th, targeting 1428-1451 as the range for this move (reaching 1434.37). We also played the little H&S pattern last Friday for a quick 11 points and went to cash — where we remain.

As discussed yesterday, there are a number of chart patterns in play that offer guidance for the coming days and are consistent with our SPX forecast.

continued for members…

SPX is currently bumping up against the mid-line of the revised channel down from 1474 — an appropriate place for it to be on a day when much seems to be riding on the elections.

According to the election watchers, Obama will carry the presidency and the House and Senate will remain split.  So, there’s little need to pump things any higher than they already are.  As a result, I’m going to try a short here at 1424 and will maintain a rather loose stop, probably at the former high of 1434.  If I’m wrong and we exceed 1434, I’ll play along on the upside and look to re-short at either Point B or Point C of our analog.

The 60-min RSI appears to be back testing the recently broken rising channel.  Note that we have no negative divergence on the 60-min or the daily charts, but we didn’t have it at the 1474 peak on Sep 14 either.

Note also that there’s a very distinct Head & Shoulders pattern on RSI itself.  I view this as somewhat circumstantial, but I believe it matters — since relative strength should continue to make new highs in a healthy market advance.

I’m about 65/35 on the analog playing out.  So, I’m not betting the farm at this stage.  A move above 1435-1436 obviously kills off one of the smaller H&S patterns currently setting up.  But, the red RSI TL should limit any move up to one of our other targets.  So, a switch to the long side would probably be very short-lived.

More in a few…