As you can see from our Big Chart, we're testing that 50 dma on the NYSE at 9,408 after failing to hold the 9,500 line (-5%) we've been watching for some time. I had been annoying people all during July by never feeling able to get more bearish and, after finishing our July Trade Review, I think we can sum it up to low volume and lethargic earnings that was bothering me the most on the way up.
Now that we've had a bit of a pullback, the question is – where should it end? What's our "fair value" for our indexes? It's kind of a tricky question as we have long maintained, since last year, that 1,450 on the S&P was our year-end target without stimulus. But there is stimulus – $85Bn a month from the Fed and $75Bn a month from the BOJ and call it $25Bn a month from China and $15Bn a month from the ECB is $200Bn a month of $2.2Tn a year pumped into the system.
Other wildcards in play are China melting down, Egypt blowing up, Japan just doing what they're doing now, Europe heading back into Recession, the collapse of the US Middle Class, etc. Plenty to worry about. In fact, we can add Brazil to that list as JPM just cut that country's growth forcast for Q3 by 80%, from 1.5% to just 0.3%. Emerging markets have fallen generally out of favor but Brazil is the "B" in BRIC – not encouraging…
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