After the Crash...What?

So when all was said and done last week, after the stock market crashed and treasuries were scooped up by - well, whoever buys those things these days - we wind up down but not that much: only about 4% for the week, and about 12% from the May highs. Put it this way, for all the nervousness out there, it's not that bad.

Not only wasn't it as bad as it felt, but there were some strong up days last week. In fact, on two of those days up volume was over 90% vs. down volume - so probably institutions were stepping in to buy. They're thinking they can make money at the prices we saw last week after the two sharp down days. And with that buying, we very well may see two things: first, the market working its way up in coming weeks; then possibly a re-testing of the lows (the intraday low last week was around 10,600 for the Dow).

The big thing then will be a) whether we put in a new low for the DJI and b) whether that new low will be below 10,600 or below the number I'm looking at: 9,686, which we hit July 2, 2010. If we don't dip below 10,600, we'll probably see the DJI turn around and head up and we'll be confirmed in a bull run. If we dip below 10,600 but not 9.686, ditto. But if we dip below 9,686, you may be looking at the bear market resuming - and all bets are off.

So why the strong resistance to falling further this week? My guess is the market is anticipating the Fed coming through with QE3 - or whatever they call their next round of stimulus. Bernanke basically announced they've got something in the wings if they see continued economic weakness, and I'm thinking the market figures they've seen the weakness and Bernanke will respond.

If the stimulus comes, heck, it may very well be a good time to execute on some of those stock ideas that have been biding their time.

Well, what can you say? This is what happens when the Fed keeps toying with things. You have to keep your eye on them and plan accordingly. To ignore their shenanigans isn't really a good option these days. They've dumped trillions into the economy without much to show for it, and in the Keynesian way they won't learn any lessons; they'll just look to dump more.

Their goal is to keep the economy from a new recession, by hook or by crook - meaning they'll "spend whatever it takes" - and by spend I mean create mountains of new money by borrowing and printing. They won't stop to wonder why their previous attempts haven't worked. That's why you have to see Keynesian economics as more of a religion than a science. They simply believe in it, even when the evidence shows them otherwise.

And somehow all of this is being absorbed and mulled over by the markets - all those individual decision-makers trying to figure out whether to buy or sell. It's pretty fascinating stuff when you think of it like this, isn't it?

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