Dare to be Bear: Hindenburg Confirmation #3, News on the Fed. & Other Optimistic Pessimism

Aug. 30, 2010 - PRLog -- Just when Wall Street thought the economic environment couldn’t be more uncertain...

Though one event is certainly occurring - the US markets are increasingly destabilizing. On Tuesday, August 24, a third Hindenburg Omen confirmation and fourth HO signal was identified. Compared to the first HO sighting on Aug. 12, the Dow has declined approximately 3.2% in value (recently closing below 10,000) and shows no signs of retracement nearing September, historically the worst performing month. Jim Meikka, originator of the Hindenburg Omen, now warns that with multiple HO’s surfacing, stocks could decline 20% in value by the end of Sept.

So in the case of this prophetic Omen, is repetition a key indicator?

Quant Trade founder and market analyst, Erik Long, commented on the bearish market-busters that result as a sign of the times:

“Uncertainty in advance of the mid-term election will probably serve to bias the overall market sentiment in the bearish direction," Long said. "Based on our technical predictors, we estimate the Dow to be in the 9874 to 10617 range coming into October.”

You don’t have to be a Wall Street veteran or market analyst to foresee the impending deflationary trend that our nation is facing. It’s manifested though the sentiment of the people, high unemployment rates, and lack of (investor) liquidity. Amplifying this perfect storm of financial turmoil, the Fed. continues to leverage monetary policy with quantitative easing, dangerously low interest rates, and convoluted balance sheets.

Friday morning all eyes were on Jackson Hole, WY as “Big Ben” (Bernanke) led the Fed’s annual monetary symposium regarding stagnant 1.6% second quarter GDP growth and blueprints to revive our economy’s own healthcare plan. Bernanke emphasized the Fed’s “all it can do” strategy amid his opening remarks,

“The Committee is prepared to provide additional monetary accommodation through unconventional measures if it proves necessary, especially if the outlook were to deteriorate significantly,”

Bernanke on GDP:

“Incoming data suggest that the recovery of output and employment in the United States has slowed in recent months, to a pace somewhat lower than most FOMC participants projected earlier this year,” he stated. “Consumer spending may continue to grow relatively slowly in the near term.”

According to research reports gauging capital investor confidence by the Spectrem Group, “Millionaires posted their biggest decline in investment confidence in more than a year in August, while affluent investors saw their confidence decline for a third-straight month.” Findings support that the upper-income brackets are also reverting to a bearish frame of mind. This inelasticity of venture capital and job creation has rendered investors virtually paralyzed.

How I learned to stop worrying and love the Bear:

Remember that “glimmer of hope” all these news sources are referring to? That glimmer is something I like to call Optimistic Pessimism. While enduring an unprecedented recessionary cycle, the focal point resides with the fact that investors have taken a major blow to their traditional portfolios. Fundamentals are set aside, neglecting the premise that there’s potential to yield profit both long and short the market. The so-called tug of war between Bulls and Bears may lean bias toward a particular trend, providing great opportunity to lucratively trade in that direction.

Be optimistic that speculators will remain pessimistic.

Dare to be Bear until the market proves otherwise.

For all economic updates, visit: http://www.FractalFinance.com



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Quant Trade Tech. is a trading technology and consulting firm specializing in the application of Chaos Theory and Complex Adaptive Systems (CAS) to the financial markets.