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SPX and US Dollar: The Fundamental Disconnect Is Likely to Continue


Fundamentals are lost in a market where there's no assignable value.

The S&P 500 (INDEXSP:.INX) has continued to drift higher over the past couple sessions, as expected on Monday. Now that the market has broken out to decisive new highs, there's nothing in the way of horizontal resistance for the market to struggle with, there's simply channel resistance and Fibonacci zones. If bears can't reverse this fairly directly, then there's no reason to believe the market won't reach my longer-term targets from January (the mid-to-high 1600s -- and ultimately the mid-1700s) – though, to be fair, I didn't anticipate we'd get there this directly; as I wrote last month, I thought we'd see more backing and filling first.

This is a strange market environment, and if you haven't been trading for a long time, you may not realize exactly how strange it really is. Due to the Fed's bubble pumping, the market technicals are now deeply detached from the economic fundamentals. And while the Fed points to things like the "good" jobs number last week as signs that they're doing something helpful for the fundamental economy, the reality is that the growth rate in jobs has held steady at the same level it was before the QE-Infinity days. As I wrote back when QE-Infinity was first announced, there's been no statistical link to the QE programs and job creation, and that remains the case today.

Beyond that, the jobs we're actually creating in this economy are the types of jobs you might have thought were pretty cool back when you were 16 years old because of their "awesome" benefits, such as the benefit of being able to take home an unsold pizza from work, after a grueling night of delivery. But if you're an adult these days, you may not be as excited as the Fed is about this "new job growth" -- especially if you have to feed a family, or a particularly large dog. But the government doesn't differentiate all that in the jobs numbers: There's no category for "number of new jobs created which would still leave you eating a ton of Ramen noodles."

What I (and many other traders) find particularly flummoxing about this market is the fact that the Fed has managed to completely obfuscate the value of everything. What are equities actually "worth" these days? How about the dollar, or metals, or oil? With $85 billion of Nuevo Dinero being pumped into the markets out of the raw ether each month, how on earth can anyone have the faintest clue what anything is actually worth? It's an auction where the fat cats are playing with Monopoly money -- so the players who actually move this market don't need to be bothered with petty details like "value" anymore. Maybe that's what the Fed wanted all along.

As long as this money flood goes on without at least a larger crisis of confidence, then bears are probably going to continue having a hard time getting anything to stick.

Speaking of value, I haven't updated the US dollar chart in a while. I was consistently bullish on the dollar from September 2011 until July of 2012, at which point I shifted to neutral with a slight bearish bias. That's where I remain today. Since July 2012, the dollar has spent those 10 months trading in a very large range. It's an interesting pattern now -- note the similarity of the moves highlighted by the red boxes.

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Last week I noted the Philadelphia Bank Index (INDEXDJX:BKX) might serve as a warning to bears, and it has now broken out to new highs. It's now approaching 58.83, the peak of 2010; this is the first time this market has challenged that high since. Unlike SPX, the BKX has not recovered anything approaching its nosebleed levels of 2007, when it traded at more than double its current price (the peak was 121.16). As a result, also unlike SPX, BXK does still have lots of horizontal resistance left to contend with, and will continue to be important to keep an eye on.

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No change in the SPX count at the hourly level:

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And no change at the 5-minute level:

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In conclusion, unless the recent breakout whipsaws, there's really nothing in the charts for bears at the moment beyond random speculation. Trade safe.

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