29% Correction: Part 3
Reality! Reality! Reality!
It has been very interesting to me over the past 3 weeks regarding the sentiment in the stock market. The proverbially shot across the bow was experienced in late February. Believe me, those bearish guns are still aimed at the full ship now. This past week had the FOMC meeting, whereby the Federal Reserve changed their commentary from hawkish to neutral. I interpret their actions as bearish for the intermediate term. The reason being is that this action demonstrates the Fed is more scared then resolute in their commitments. Could it be that the fear of the sub-prime problem is more acute then the general public realizes?
Another pondering of mine is that the Fed is worried that inaction is going to be interpreted as inability to cope with current escalating problems. The back drop of the economic environment is one of inflation escalation while an economic slow-down or softening is occurring. This situation is often referred to as stagflation, a nightmare for the Fed. If I am correct that we are in stagflation, the stock market is in for a wild roller coaster ride with the majority cascading toward the troughs of sharp, steep, accelerating plunge. The Fed will have the same feeling as we do as the roller coaster careens downward with the Feds stomach feeling like it is going to be expelled through their mouth. An upset stomach will be the Feds least concern as the chronic ulcer in our economy will leave an acidic, bitter taste.
Technically, I believe the tape is telling a fore-tell of a market with diminishing foundation to it. It is like the old railroad trestle spanning the gorge and the old wooden beams have rotted to weaken the structure. The heavy train is an overload for the weakened condition and the plummet into the gorge is devastating and permanent. We have set up a situation of complacency that rivals 1987 and 2000. We all know the history of those precipitous declines and the resulting longevity of the devastation. Wall Street will no longer have the capability of smiling.
