The last three trading sessions have seen the $SPY break out above $140. Just weeks ago everyone was calling for the markets to collapse, yet here we are with stocks going on their merry way higher. Eventually those calling for the markets to decline will be right, even a broken clock is right twice a day, but as I have said over and over and over and over again, the central banks will not let this house of cards collapse, at least not yet.
The SPY remains over the key $140 psychological figure. Stocks are shrugging off bad economic data thinking it will provide the FED with an excuse for more QE. Dips are being bought, oh my are we already pricing in QE4? Even my 6 year old knows QE3 is coming in September and Bonds! Oh yes Bonds! Aside from the government manipulating yields lower to "stimulate" the economy there has been a tremendous flight to bonds. It has been a double whammy of bond buying which recently sent yields to record lows.
Today the 10 year note sale had its weakest demand in over 3 years. Is this the start of a trend? Take a look at TLT, an ETF that gives a clear view of longer dated bonds, which you don't want to be holding when bonds start to sell off. (The average bond holding for TLT will mature in 27.9 years) We can already see a potential top.
TLT is up over 50% in less than 2 years and could be in the early stages of a dramatic decline. If yields start to rise, and bonds sell off, where is this money going to go? Perhaps junk bonds? How about high quality, dividend paying stocks, with strong free cash flow? How about anything that isn't bolted down to the floor of the NYSE?
Hard to believe I am a bear... right? All this government manipulation will end very, very badly. If the bond bubble bursts, stocks will rise, and we will see massive inflation down the road. QE3,4,5 will quickly become QE 15,16,17 as interest rates soar and the Treasury is crippled with enormous interest payments. But this isn't all coming over the next few months it will take some time. Right now I am focused on the short term so I can better prepare myself for the bigger picture. (If you haven't prepared for the upcoming global economic crash than you haven't been watching Doomsday Preppers, your next door neighbor already has! LMAO!)
$SPY looks ready to retrace some of its gains from earlier this week and late last week. I have highlighted each time $SPY has hit the upper trendline of the channel. It pulls back (as it did yesterday) and then tries to make another push for it and fails (as it did today).
My outlook? A pull back/consolidation to no less than $136.80, more likely $137.40, and then a resumption of this rally that will bring us to new highs for the year. There is also the chance we don't pull back and we break right out of this channel. If that happens we will see new highs for the year within a week or two. Wild!
This has nothing to do with the economy or earnings and everything to do with bonds. A rush out of bonds will give stocks their next push higher.