• November 3, 2011

    The Current “Pump and Dump”
    Environment is Still Very Dangerous

    By Dennis Slothower
    Editor, Stealth Stocks

    Stocks advanced Thursday on the news that the ECB cut interest rates and Greece politicians have reversed their decision for a referendum vote on their recent bailout.

    On any given day (or maybe any given hour!) the U.S. stock market can swing by several percent based on a rumor, a statement by a central banker, a world leader…just about anything these days can set the herd stampeding in either direction in a flash.

    On Thursday, Greece’s Prime Minister Papandreou scrapped plans to hold a referendum on the Oct. 27 bailout agreement after the EU cut off all financial aid to Greece until after a referendum vote was held.

    The political drama is not over. Papandreou has called a confidence vote on his government for Friday night, and his majority was reduced to the bare minimum 151 when Socialist lawmaker Eva Kaili said she would not vote in favor.

    Not that any of this really matters as the European economy is going into the pooper.

    Premier Silvio Berlusconi’s government in Italy is teetering like Greece after it failed to come up with a credible plan to deal with its dangerously high debts, and Portugal demanded more flexible terms for its own bailout.

    Remember this so called European bailout fund is to be funded with “private investor” assets. And no one really has figured out who will put up the money now that China is now not interested.

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    One of the world’s most successful – and most accurate – stock market observers has just issued an urgent warning.  At this very moment, our Oil Shock Recession could mean as much as 15 months of economic trouble ahead of us…with potential devastation even greater than what we saw back in 2008.

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    So who is going to bailout Europe? Well, I guess you are! This is why the Fed may come up with another stimulus package - to help fund Europe even if it means the global economy crashes over soaring energy prices.

    Which it seems to be doing…

    As I have warned and continue to forewarn, Europe is choking on $110 Brent crude oil and if the bankers keep printing more money it will only get worse. Kick the can down the road but you will pay even more for it later.

    So while investment bankers/primary dealers are facing the grim realities and some are going bankrupt (MF Global) this much is certain, irrespective of a global economy that is suffering the effects of higher and higher inflation, the Fed and other central bankers continue to intervene, promising to stabilize the markets even though the global economy moves toward a certain recession.

    It is clear Ben Bernanke believes he should keep printing money period and let the economic cycle take care of itself.

    I would like to know how the US can grow economically if Europe is now in recession, with half of its countries and banks insolvent.

    I certainly want you to make money, but I sure as heck do not want to you to be caught in a severe market collapse. It only takes one of these to put you out of the game permanently if you’re investing serious money.

    Missing severe market drops is essential to investment success — and right now we can’t be sure of anything in a pump and dump market environment when it only takes a minor switch to start the next selling phase.

    Technically, the stock market is still in a bear market, at best a trading range in one of the most whipsawed markets in history. The price of the S&P 500 benchmark is trading below the 200-day moving average but above its 50-day EMA.

    In the meantime, we are extremely overbought an intermediate-term basis.

    The Russell 2000 has back tested to its old support level that was breached in July which is resistance, while the weekly stochastics are now very overbought with %K at 92 and %D at 77.

    Do you go long here? How much upside potential is there with crude oil prices pushing toward $100 a barrel in November?

    As Doug Kass put it, “In one brief four-week period, the fear of return of capital has been replaced with the fear of an inadequate return on capital as fear of the downside has been replaced with fear of missing the upside.”

    Crazy times.

    Friday, November 4th, 2011 at 13:32
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