-Domino’s fall as Joseph McCarthy predicted
Like sands through an hourglass, the contagion spreads. Onward to Spain, which is worse than Greece, because if they cannot pay their bills they are not only too big to fail but too big to save! The domino’s are falling, just as Joseph McCarthy predicted in the early 1950’s. Only this time it’s not communism but capitalism and the worst kind where a debt crisis is believed to be solved with more debt.
Again for the fourth year in a row the market has had an ugly correction in the 2nd quarter, which we are in the throes of. As with every correction investors must decide whether to look past the valley, ignore the short term volatility and sit tight for the impending rebound or sell ahead of the approaching doom. Of course there is no telling which it will be until it is long past, and everybody is a hero in hindsight. The past has shown that it has been better to wait it out. However, this time could easily be different. Therefore, if you are of the persuasion that the bull market is over, it is generally advisable to wait and sell into rallies, rather than have stops and get stopped out right before a rally ensues.
However, it’s hard to believe that the Fed will not continue its stimulus and throw out a QE3, which would reverse this decline and make the sellers look stupid. My concern is that if they don’t come through, which is a possibility because they know that each Quantitative Easing generates higher inflation which ends up hurting the people it is supposed to help.
Therefore we must be prepared for that possibility, and watch for a break of the 200 day moving average, which is about 12,200 on the Dow and 1,280 for the S&P 500. Of course, all stocks do not peak all at once on the day the market reaches its high, nor is there a bell that rings when we hit the top. Identifying a top is extremely difficult. On a technical basis, the market may be breaking down as nearly 40% of NYSE listed stocks are down over 20% and 30% down over 30%. This clearly illustrates that the real picture is worse than it appears on the surface or in the headlines as the indexes are down only about 10%.
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