Richard Russell continues:

“Now gold has its choice of breaking out on the upside of the rectangle or on the downside ... It's obvious that there are buyers at 1550 or below, and that there are sellers near the 1800 area.  All of which has given us a trading range of almost one year.

It's always educational to view the stock market as a ‘big picture.’  For that I'll include the Wilshire 5,000, below.  The Wilshire includes almost all stocks traded on the NASDAQ, the Amex and the NYSE.  I ran a horizontal line on the chart starting from the May 2011 Peak.  Note that the Wilshire is below the 2011 peak now.  Thus, since May, 2011, the mass of US stocks are actually down.  And so are most portfolios.

Right now, US stocks are at a standstill -- caught between two opposing forces.  The positive force is the hope of additional Fed stimulative action.  The negative force is the primary trend of deflation and over-production.

The whole world of fundamental and technical analysis seems to be in a state of chronic confusion.  Analysts are confounded by this seemingly trendless stock market.  Meanwhile, Treasury yields are sitting on near-record lows. We're seeing a strange paradox here. 

People are worried.  Unemployment is high.  Every day brings news of fresh layoffs.  Many people (families) are cutting back on spending.  This year, many Americans are taking their ‘stay-cations’ at home.

The stock market possesses the ability to forecast coming events.  But the periodic spates of Fed stimulation have thrown some sand into the stock market's delicate machine.  For instance, is it a forecast of better times when the Fed introduces a new session of QE?  In other words, is Fed-stimulation of the stock market a dependable forecaster of improving business?  Personally, I don't think so. 

Thus, we see the stock market ‘up on Fed-created stilts’ and at the same time we see depressing economic news in the newspaper headlines.  I'm stating that deflationary and deleveraging forces are still in command, and all the Fed's manipulations are, and will, fail to turn the bear market into a new bull market.

Some months ago Fed Chairman Bernanke apologized to the world on the part of the Fed, because the Fed had contracted the money supply in 1938, thereby bringing about a market crash.  Said Bernanke, we're sorry for the Fed's mistake, but I promise that it won't happen again. 

Obviously, Bernanke believes that the Fed can control deflation and deleveraging as well as the primary trend of the market.  Personally, I'm afraid that we'll see the time when Bernanke will be forced to eat his words.

Like the great tide of the ocean, the primary trend of the stock market functions in its own way, this despite the desires of man.  The Bible tells us of the instance when Jesus commanded the ocean to become quiet and the waves to die down.  The ocean reacted exactly as Jesus commanded.  All well and good, but it is well to remember that Ben S. Bernanke is no Jesus.

Yes, we had the ‘usual’ late-session rally.  The Dow is closing down only 83 with Transports down 67.  Is the Fed buying the Dow at the close?  It wouldn't surprise me.”


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