The Fed Is Out Of Magic Bullets

And probably regrets the ammo already spent trying to prop this market up, ah-who am I kidding. I'm sure the Fed had their reasons and those who needed to bail, were able to do so. In any case, the Fed chatter is clearly off the topic of rate cuts and is not so subtly hinting that a hike is in the cards. Fed futures are pricing in something like an 80+% chance of a hike by Sept. While the Fed would like to do whatever it can to save the Financial industry from their selves, the fact is, inflation is rearing its ugly little head. I never understood all these economic reports that were ex-energy saying inflation was within the Fed's comfort zone. Oil is up over 500% from a decade ago. Gas and food (food is the other one the always exclude) are driving the consumer into or further into, debt. I know hard working people putting in over 60 hours a week physical labor and they still have to put their groceries on a CREDIT CARD! I mean, come on! How much is enough for these fat-cats?

I don't want to get off on a political rant, but I'm sure politics in the White House had more than a little to do with the cost of a barrel of ugly black goop. OPEC's "out", (that there is no need to increase output because it is simply speculators keeping oil prices artificially high) just doesn't hold water and they are literally killing the goose that laid the golden egg, but what the heck-squeeze every last drop of blood out while you still can. After all, elections are coming up and the rhetoric on the subject is likely to send a more than a few volleys over their bow. No one will be elected president in the US if they don't take a stand against "big oil".

Back on point, the market is jittery over renewed concerns (renewed for all of us-the little people and I'll prove my point with a chart showing the distribution that this rally has produced) about the next round of likely write-downs for the financials. Meredith Whitney, an analyst with Oppenheimer who has a reputation for accurate predictions regarding the financial mess, said on CNBC that banks face more write-down on loans than they had during the first quarter on CDOs. Meaning, the other shoe is about to drop. ABK/MBI is not over either.

There's also concerns over inflation and rate hikes. Guess who stands to lose the most over rate hikes? The same group that has done the best recently-the NASDAQ. LEH has the potential to be the next...well, I'll give you a hint-the ticker starts with a B and is followed by an S and most share holders probably feel that would be an appropriate ticker given their honesty challenges. And banks may have to forgo their dividends.

The problems didn't just pop up again as the street would have you think. They've been there the whole time, never went away for a minute. It's just that the street needed to change the tone for a few months so they could pull off a bear market rally and unload more inventory at higher levels (see attached chart). So expect the market tone to be negative, expect new dire stories to pop up every couple of days. Don't expect this market to go straight down, it won't. Even in January, when it felt like the market was going straight down, there were about 8 up days out of about 21 days. So they'll try to fool you into thinking it's not really happening and if you are in a loosing position, you may just be inclined to want to believe them, don't. This is a bear market rally, always was, always will be.

the first chart shows the intraday positive divergence that is still building (mentioned earlier today) so a bounce is brewing. The second is a longer chart that shows the very real and nasty negative divergence that has plagued this rally. Both charts are my 3C indicator on TeleChart.