USA: Market Is Entering Rough Waters

I’m not going to sugarcoat this as it appears we may be in for a bumpy ride. This is not a bad thing. It’s just a cycle and if you remain calm throughout this you may even pocket some money in the process. Not even the prospect of nationalization could have turned the markets around, as we sold off hard into the close yesterday. What I saw with regard to my indicators is the same problem I’ve been noticing these past few weeks. A lack of fear. Option buyers still haven’t switched over to the massive put buying that one likes to see at major or short term bottoms. The crowd is almost always wrong especially at critical turning points and it feels like an important “something” is about to happen. Record new lows haven’t been setting in and even the media has remained fairly calm throughout this recent downturn.

You have to ask yourself, “What could turn this market around?” To be completely honest I don’t see many answers that would answer that question satisfactorily. However, maybe rephrase the question and ask “What could give this market a temporary bounce?” The answer to that lies in the form of a catalyst that gives the appearance of acting like a tourniquet on this bleeding market. And that is exactly what we have here. A market devoid of any significant buying, or put in simplified terms, confidence.

As far as catalysts go, there are a few out there that I feel could light a spark in this market. However let me be clear that I don’t condone any of these and I fear they would only be a short term spark that would eventually lead to new lows. I’m trying to pretend I’m the government, and think like they would think and react to what is going on in the markets.

Bank nationalization - this almost seems like a given at this point and it scares me so much because I already fear the government and believe this would be a major mistake putting the government in charge of our money. I was just out walking my dog and a thought popped into my head. The Federal Reserve will become our new banking system. They already loan money to the banks, why don’t they just become the bank? Oh, and don’t forget, the Fed is a privately owned cooperation. Scary stuff.
Start the war drums. Iraq, Iran, Afghanistan pick your opponent. Sometimes I think our government thinks it’s playing a live Risk game. The prospect of a war could lead people to perceive that a pickup in the economy is imminent, but I disagree. All troops should be brought home and the military should be sliced in half. That would be truly beneficial to the economy. The economic toll our military costs this country is staggering.
Amero - a new currency that is comprised of the US Dollar, Canadian Loony, and Mexican Peso. Don’t think this could happen but whoever thought the Euro would happen. Go ahead and google “Amero” and see what you find. It’s real and it’s coming. I have no idea if this is going to happen in the near term, but I tend to believe that the process is underway. A new currency, fresh start could be seen as a positive development.
One day crash of 20+ percent. – This alone could be a catalyst for buyers to step in and buy some stock as their perception could be that stocks are cheap enough to warrant the risk.

I have no idea if any or all of these will happen, but something has got to give. No market goes straight down, and this one seems to be building steam to the downside. Markets tend to get very irrational at times like these and I’m sure our government has got to be thinking things like “desperate times call for desperate measures.” When the government starts ushering phrases like this watch out and be sure to read the fine print.

Expand your mind as you contemplate these topics and please post your opinion. I really want to know what people are thinking out there about these topics and others. Long time readers of Zentrader should be all or mostly in cash right now, as I’ve been preaching about equity preservation and unstable markets for awhile now. These are the times to remain calm, observe what’s going on, and react to it. Leave predicting what is going to happen to amateurs.

By Jeff Pierce