WallStreetWeather.net Forecast For Week Of November 15, 2009

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Summary Of Last Week’s Influences:
The Dow and the S&P reached new highs last week, fueled by the belief that the flow of easy money will support a global recovery.

Markets began last week in full bull mode as the Sun (speculation) challenged Jupiter (optimism; foreign markets) early last week. Traders got the green light to carry on with the dollar carry trade after G20 finance ministers last weekend reiterated their support of continued economic stimulus, with Treasury Secretary Geithner and Prime Minister Brown warning against ending stimulus measures prematurely. Although the IMF issued a report to coincide with the meeting, acknowledging that the Fed’s zero interest rate policy has caused traders to borrow dollars (instead of Yen) to buy assets in other currencies providing higher yield, the IMF report said the dollar is still strong. Adding fuel to the market’s enthusiasm were speeches made by several Federal Reserve bank presidents that continued to emphasize the Fed isn’t likely to budge on raising rates anytime soon.

As mentioned in last week’s Forecast , currency shifts took place last Wednesday as the dollar hit a 15 month low against a basket of the world’s major currencies before regaining some strength. The governments of Thailand, South Korea, Russia, and the Philippines had to purchase dollars to hold down the value of their currencies. As Mercury challenged Neptune, it was unclear what effect if any China’s announcement that it would take major currency trends into account would have on the value of the Yuan that is pegged to the dollar.

Oil made big moves last week, mostly to the downside on concerns that supply far outstrips demand. Gold closed Friday at a new nominal price record high of $1,116.70, edged on by Treasury Secretary Geithner reiterating our “strong dollar policy,” stating Thursday that it is “too early” to talk of asset bubbles.

A front page story in Tuesday’s Wall Street Journal referred to the current bull run since March’s multiyear lows as a “’skeptics’ rally’ – fed by money managers who feel they must make risky bets in order to keep up with the market, but who don’t like what they see.” Interwoven throughout the article is that the immediate to short term future has a “party on” attitude that will have to seriously sober up later.

“You can’t fight the Fed” is certainly the mantra that the market has been reciting. In its role as bank regulator, the Fed’s first concern is the banks. While zero interest rates and excess liquidity are helping the banks to recapitalize and make profits big enough to pay out record bonuses, consumers are not deriving any benefit from it. The government claims it wants Americans to save money, yet savers would be hard pressed to find a savings account or less than a two year term CD that pays enough interest to cover inflation and taxes on interest income. Rates are low yet many consumers who carry a credit card balance are paying between 20-30% interest. The Fed’s effort to change overdraft rules that would require bank customers to “opt in” is a pure political play to keep its power as the rule wouldn’t kick in until July 2010.

The Fed is punishing consumers, pushing them into riskier investments in order to obtain a decent yield. This is particularly hard on seniors living on fixed incomes. This is why the Federal Reserve cannot be in charge of consumer finance and the banking system in general. There is a clear conflict of interest between what is good for consumers and what benefits the bankers. The Fed in its current incarnation has too many conflicting mandates and should only focus on price stability.

We can talk about all the many factors that lead to the financial crisis in the first place, but the bottom line is that all roads lead back to the Fed and Ben Bernanke who served on the Board of Governors under Greenspan’s Fed before he became Chairman in 2006. If monetary and regulatory policy had not been too low and too loose for too long, we wouldn’t be in such a deep and lingering financial mess. But because we apparently didn’t have enough fun the first time around, we had to keep a Fed Board and reappoint a Chairman who continues his negative feedback loop of implementing the same policies over and over again.

In a follow up to my Oct 11 Forecast, NASA confirmed that its LCROSS mission has found lots of water on the Moon. Well, duh! After all, the Moon rules water, our emotional outlook, and women. It was amusing that the news came on Friday the 13th as there are 13 Moons in a calendar year, and Fridays and the number 13 carry a strong feminine energy. Water will pave the way for humans to return to the Moon. And as far as space exploration is concerned, the lawyers are already ahead of NASA!

Summary Of This Week’s Influences:
Saturn makes the first of three challenging squares to Pluto today, the day before the New Moon in Pluto-ruled Scorpio. Saturn challenging Pluto in the waning phase of its cycle tends to dampen the desire to spend, as people are cautious and worried about their income relative to debt.

Right now the market seems to be on autopilot. Stocks and major commodities rise as the dollar falls, and fall as the dollar rises. Saturn challenging Pluto puts downward pressure on the market’s inflated expectations for markets to continue to accelerate, as reflected by the Sun challenging Neptune in Aquarius now. Even the slightest development could cause the asset bubble to burst as investors panic in a mass exodus for the exit door.

Mercury (thoughts/communications) enters Sagittarius this evening until December 5, bringing some needed cheer and humor to offset the heavy duty influences of Saturn and Pluto. Mercury makes a favorable aspect to Saturn tomorrow, helping to uncover the truth about how imbalanced the government’s arrangements with the banks really are. With the Moon (sentiment) in Sagittarius Tuesday and Wednesday, the focus is on emerging markets and trade imbalances, and growth prospects.

Venus in Pluto-ruled Scorpio challenges Mars in Leo later Wednesday/Thursday which could motivate investors to take profits. The Moon shifts into Saturn-ruled Capricorn Thursday and Friday, reinforcing Saturn/Pluto themes and exhibiting caution and concern about financial regulation and debt.

In short, it looks like the indices will be strongest Tuesday and Wednesday, with volatility increasing and sentiment turning negative Thursday and Friday.

Monday, November 16, 2009
A combination of bullish and bearish influences likely keeps the indices choppy and vacillating between negative and positive, but negative sentiment seems more prevalent.

Tuesday, November 17, 2009
Positive.

Wednesday, November 18, 2009
Market improves as day progresses; positive trend bias.

Thursday, November 19, 2009
Negative.

Friday, November 20, 2009
(Options expiration). Negative trend bias, but could stage a late day turnaround.

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