As we suspected in last night’s post,

A break of today’s low at 2945.23 cinches a beeline move to the 50-day, where algos will likely set their bear trap and try and bounce the market.  We expect a feeble bounce at best, which should be spanked. — GMM, August 1st

Right on schedule, the 50-day breaks this morning, human emotions run amok, shorts pile in, and the Bear Trap Inn Algo comes in and puts the big hurt on short selling day traders.   If you have been watching the markets over the past ten years, it is so predictable

However, as we stated last night,

We expect a feeble bounce at best, which should be spanked.

The S&P must then hold the 2867-2889 level, which is huge support coinciding with the first Fibo and 200-day moving average, respectively.   We think that is where the index is heading over the next week probably after some strum und drang after tomorrow’s employment report.  — GMM,  August 1st

The talking head traders are way too bullish.  Not even thinking about a tradeable bounce until the 200-day, then will only keep it on a very tight leash.

Can The Fed Solve All?  

Do you think if the Fed acted preemptively in August 1914 and April 1939, we could have averted the two World Wars?   We know the Fed was young in 1914, but surely its cyclical tools could have solved the structural global economic and political forces driving nations to war, no?

Totally assinine thinking by Mr. Market channeling some mystical and omnipotent powers to the central banks.  But, hey, everybody needs a Savior when you got nuttin’ else.

Nobody knows the future.

Expecting the Fed to see all, know all and precisely fine-tune the economy and markets is tantamount to having someone thread a needle with boxing gloves on and blindfolded during a rollercoaster ride.   The belief that they can have distorted markets beyond all repair.  — GMM, July 31

I think it was Milton Freidman, who first applied the boxing glove analogy to monetary policy, but can’t find the quote.

Japan And QE

Just a side note.

Japan has had 20-years of ZIRP and QE, and its central bank is now buying stocks outright, lots of ’em, yet the NIKKEI remains 45 percent below its high made in December 1989.  Interest rates on saving deposits have been at zero for almost an entire generation.

More importantly, and sadly,  here is the end result for many, who were in their prime working years when the NIKKEI broke,

“I reached pension age and then I ran out of money. So it occurred to me – perhaps I could live for free if I lived in jail,” he says.

“So I took a bicycle and rode it to the police station and told the guy there: ‘Look, I took this.'”

The plan worked. This was Toshio’s first offence, committed when he was 62, but Japanese courts treat petty theft seriously, so it was enough to get him a one-year sentence.

Small, slender, and with a tendency to giggle, Toshio looks nothing like a habitual criminal, much less someone who’d threaten women with knives. But after he was released from his first sentence, that’s exactly what he did. – BBC

There is your case against indexing and putting it on autopilot, folks.   Stay alert.