Calm before the storm for stocks?

Dennis Slothower of Stealth Stocks Daily believes that American financial markets are manipulated by major interests. The closer we get to the presidential election, the less the chance that Bernanke will pull the quantitative easing trigger.

Peter Brimelow
Aug. 30, 2012, 2:43 a.m. EDT
Market Watch

NEW YORK (MarketWatch) — Is everybody asleep? If so, some (but not all) dreams are troubled.

Dennis Slothower of Stealth Stocks Daily is particularly restless. He writes: “If prices are any indication of interest in the stock market, nobody cares what is going on. Volume remains not just tepid, but downright depressed. If the dealer banks wanted to they could set the market price anywhere they wanted. Perhaps even the pros at the dealer banks are ‘out of the office’.”

Slothower in fact does think, and has said very loudly and repeatedly, that American financial markets are manipulated by major interests. So this might seem an admission against interest for him.

He writes further: “With only two days to go in August 2012 we are not seeing the typical end of month window dressing, with most serious professionals taking their last week of the summer off heading into this Labor Day weekend.”

Nevertheless, Stealth Stocks Daily, my 2011 letter of the year, has battened down the hatches. It is 80% in cash, 10% long hedged by 10% short.

The general somnolence means that the Dow Jones Industrial Average. DJIA -0.70% and Dow Jones Transportation Average DJT -0.74% still have not bettered their May highs — not good from a Dow Theory perspective.

Indeed, veteran Richard Russell of Dow Theory Forecasts has announced: “I’ve given up on the odds of the Dow and the Transports bettering their May highs. This, I think, is the main fact that we should deal with. This, from a Dow Theory standpoint, tells us that the market will do one of two things: it will mark time or it will go down.”

Russell’s more general thoughts: “The closer we get to the presidential election, the less the chance that Bernanke will pull the QE trigger. So volume collapses on the NYSE and prices remain stagnant in a 2% range. Interest rates (thank the Fed) remain absurdly low.

“The man in the street gets almost nothing for his savings, and unemployment remains high. The fast-contracting middle class’ sentiment is a mixture of fear and frustration. With low interest rates and meager dividend yields, most pension funds can’t keep up their funding.”

Russell’s conclusion: “At this point I think gold is more interesting than the stock market. I’m watching to see whether gold can make it to 1700. I like holding actual gold.

“Most people don’t realize the incredible safety of gold…My choice of an investment position — gold, and enough cash to pay the bills.”

On the other hand, the Cabot Market Letter, focused entirely on its own technical indicators, is growing more bullish in spite of the ominous hush.

It wrote last night: “Remain optimistic. The market has been quiet in recent days as most investors are vacationing on the beach, but our indicators remain in great shape and many leaders are acting well, either pushing ahead or quietly consolidating solid gains. We’re going to do a little more buying tonight, leaving us with a cash position of around 17%.

Cabot has a strong long-term record and has recently been recovering from a stumble as the post-2008 rally came back to earth.

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