Oil has gotten my attention this week as it has broken out to new multi-yr highs and given the tensions that are occuring in the middle east it’s likely to continue higher. Now I’m not one to trade off of macroeconomics, but my scan results this week are supporting a move higher in energy stocks and my timing signal is pointing to a market correction. It could be 5% or it could be 25%…I have no target and I’ll play it as it develops – or doesn’t develop.
The long term Nasdaq chart below shows that we have a lot of room to fall, potentially down to the 2550 area. Never mind the smaller bearish wedge that was forming on the Nasdaq, we have a much larger one that clearly shows how strong this market has been without stopping to consolidate it’s gains. Below I included Faber’s views on a potential correction from an interview this week as it supports my bearish thesis, although I wouldn’t say he’s as bearish as he normally is as QE3 should provide a floor for this market to spring higher down the road.
Faber on Stocks from LewRockwell
I’m not ultra-bearish on equities. I think they will now correct because the market is way over bought. And, so we can easily have a correction of 10% – 15%. As soon as the markets drops, say, 15%–20%, QE3 will come into play. And all that is favorable for silver and gold.
The first round of quantitative easing began around the time of the 2009 stock market lows. Marc Faber saw this coming in March of 2009, when he recommended to his subscribers to take positions in stocks. Faber knew that The Fed would pump as much money into the system as was necessary to change the perception about our economic malaise. In that respect, QE1 worked. Stocks (and commodities) saw significant gains. While a stock market crash may still be in the cards, the point that Dr. Faber makes about QE3 should not be taken lightly. The US government has already committed in excess of $30 trillion to resolve this crisis. Be assured that they will keep going if they find it necessary, regardless of the impact this will have on our national debt, the US dollar or the end consumer, who according to Fed chairman Ben Bernanke, is not experiencing any significant level of price inflation.
