Investing in a Manipulated Market…with interest rate update

Over the past thirty years two markets have evolved, the consumer market and the financial market.  Somehow the FED has decided that it can play games with both through monetary  input.  The current Financial Market game, QE2, is an example where trading and investing is not about the fundamentals, but about the player on the other side of the trade, ie. the FED. 

In my opinion, the recent market move from September 1 through November 9th will be viewed in history as an aberration of speculative fury based on an easy money Fed.  I don’t think we know yet how bad that period will be on future performance of stocks. 

On November 3, 2010, the day after the election, I outlined a worst case scenario that I think can occur if both sides in Washington don’t start thinking about the people and not who is going to be in power in the next election cycle. Interestingly the Tea Party crowd is actually bringing a bit of outside the box pressure that can help, even though most of their ideas, as to solutions, are half baked.

At the moment rising interest rates are the canary in the goldmine and the S&P 500 price area of 850 to 950 that we cited prior to September 1st looms as the next probable objective.

Interestingly, I still believe that the real economy is slowly improving and if the right things are done in Washington over the next nine months, things will get better on that front.  I think you know however, that the chances of the Democrats and Republicans getting their act together are low. 

Also keep in mind that the market is overpriced regardless of where the real economy goes in the short term.  The 50 day moving average on the S&P 500 in the 1160 area is the first stop.

The 18 ETF Computer Model signals:

Two changes yesterday. IYR (real estate), and IEF(7-10 year Treasurys) both turned down.

Long      : DBA,MOO,QQQQ,SPY,SMH,XLY,IEV,SHY,GLD,UUP

Neutral : FXE,FXI,XLF,USO

Short     : TLT,FXY,IYR,IEF

Update at 2:42 PM CST:  The TLT and IEF (interest rate ETF’s) just went neutral.