It is consolidating after the huge revaluation consequent originally on the hint of interest rate rises, a revaluation which causes incoherence with equities, as their valuation is consequent on very low rates (this may be the actual cause of the valuation shocks in the market in recent weeks, which puts Europe in perspective). That said there is a breakout in possible progress on 1 day. The Dow itself has been ranging about 10,000 (look at 6 month chart).
USD/JPY has stalled in a retracement. If the recovery really is happening, then it should start rising, even with low interest rates, but 1 month suggests room to move up, but more recent data suggests a fall (the resistance on 4 hour with spikes).
Remember the equity range is characterized by vast temporary surges into JPY, causing retracement ranges in USD/JPY. Why ? Because it is all about money flow, not equity valuations. Thus the evidence today is the market is still floating on cheap $, but with subtle technical support for recovery.
The recovery is in the market it has been for some time, but the markets are distorted and saturated by cheap $. Interest rates rising would clear this, but at a cost. This anticipation is another distortion in the market, inhibiting its computational capacity to value. Look at the way EME is in sync with the market, this is not a market which is valuing stocks.
So what would an undistorted market look like ? Well, the forex market. It precisely values everything including a distorted equity market. But an undistorted equity market is a beautiful thing.
It is the foundation of the wealth of America, a magnificent machine for bringing shares up to the fundamental value of a company, its capacity to increase its own equity over time, a computation so advanced it is hidden in the black box of chaos. Hopefully this can be restored...(of course it can be).
The nature of the market right now is a consequence of the decision to reflate assets by cheap dollars. It is an imposition on the market, not the nature of the market. One assumes its inherent computability will reassert itself, especially once interest rates start rising. Thus my call for many months to raise interest rates is about repairing the market itself.
© 2011 Guy Barry - All Rights Reserved.
