Are We Topping or On Our Way Much Higher?

Even though my CrossOver Oscillator (more on this, below) and time-cycle 'headwind-biased-this-week' forecasts say this could be a down week, you can't assume this market is topping. A limping economy, a neutered President who won't be able to implement any new anti-economy policies, zero percent interest rates and a trillion dollars of liquidity being dumped indirectly into the market is more than enough to keep the market moving upwards and onwards. Never mind that down the tracks (somewhere) the bridge is out. Full steam ahead!!

This is a buy-on-any-dip kind of market and this strategy will likely work until price-fixing of interest rates is stopped and until the Fed quits juicing the market with fiat trillions of dollars of debt-monetizing money. For that to happen, Europe has to get on board, China has to get on board and, certainly, Japan, the poster child of quantitative easing has to get on board.

You will see that my Bull/Bear Forecast is bearish, but that does not mean I am forecasting a bear trend… no… I am only forecasting short-term dips that should be good for buying. That's my plan for this coming week.

Sector Analysis…

I like to look at the top 30 stocks each week to see if there are any signs of "Sector Rotation". On occasion, you will see a preponderance of one or two Sectors. When this occurs, it is an indication that money is flowing into those Sectors. I am looking into a way to show this trend to you graphically… just another one of our planned upgrades to the Tools at some point in the future.

This week, Basic Materials and Financials have a slight edge, but keep in mind, some Sectors have far more equities than others, so the ability for a Sector like Basic Materials to have more Top-30 stocks is not unusual. For the most part, though, the distribution of the top 30 is not concentrated in any one Sector. Here is the distribution by Sector of the Top-30:

• Basic Materials: 23%
• Consumer Discretionary: 12%
• Financials: 23%
• Healthcare: 16%
• Industrials: 10%
• Technology: 10%
• Telecom: 6%
• Utilities: 0%

Closing Thoughts…

There is no small amount of debate about how much of the current booming bull market is due to economic conditions and how much of it is due to politically-driven monetary machinations. In recent weeks, there have been research reports published that the Fed has little to do with the raging bull market. During the last several days, a former Fed executive has admitted that the so-called QE has not worked and apologized to America for doing just opposite of what was intended… namely, driving up stock prices for the wealthy and doing nothing for the rank-and-file US citizen.

While concentrating on anecdotal data, if you don't think the market is tied to the Fed's trillion-dollar-a-year debt monetization scheme, think back to when the Fed said it was going to just "tighten" a little of their massive monthly infusion of fiat money into (the market?) financial institutions… the market tanked on any real news of "tapering". There is an old saying that I think aptly applies here: "If it walks like a duck, talks like a duck and looks like a duck, it is probably a duck."

I am, for the time being, completely convinced that the stock market is in a massive (inflated) bubble, driven primarily by the $85 billion per month being dumped one way or the other, into the market, that will, at some point in the future, burst in a not too pleasant manner. This equity-inflation bubble is a wonderful thing to participate in as long as it does not burst. And, I don't see anything on the horizon that could burst this bubble until one of two things occur:

1. The world quits buying our debt and we cannot continue to buy our own debt with our own money, or
2. The politics in Washington change from liberals not dealing with out-of-control spending and debt creation, to fiscal conservatives who clamp down on the unsustainable creation of debt.

I suspect it will take years for the world to quit buying our debt and force us to live within our means. The world can ill afford for the US to move into bankruptcy. The emperor may be buck naked, but the world keeps acting like he is fully clothed because the alternative is too dire to consider in their own flimsily constructed economies.

On the other hand, with the Obamacare debacle, it is entirely possible that enough people will rebel at being lied to, that they usher in a batch of fiscal conservatives that put the kibosh on the spendthrift democrats AND republicans. That may well be the right thing to do for our country and the worst thing that could happen to the stock market. The next two years could be fascinating to watch.

One of these days, the market will have reached a top, but I don't see that top coming anytime soon. One thing that jumps out at me in the Turner CrossOver Oscillator, above, is the low number of new technical buys and the low number of new technical short sells. This market is a long, long way from being over bought according to the Oscillator; even though the market is breaking new highs all the time.

Yes, I do believe the market will move higher and maybe a lot higher before it crashes. But, unfortunately (and I hope I am wrong), this market is due for a massive reversal when all the free money and zero interest rates stop. The Central Banks of the world cannot continue to print fiat money indefinitely. Interest rates can only be artificially controlled for so long. A day of reckoning is coming. But, I seriously doubt that day will occur before next year's mid-term election, if then. My guess is it will take an ideological change of significant proportions in Washington and there is no guarantee that it will happen in the next two national elections.

Have a great week in the market!