Follow the money, follow the banks

samsonAs I explained last Friday, the markets were at an important juncture, and I showed you this chart, explaining that what we were expecting the see next was a bounce off of the new ‘floor’ for the Dow Jones:

129131

So let’s look at what happened next, what it means, and how you can benefit from this action…

Here’s the updated chart:

129132

So there we have that bounce, and that’s a positive sign. As I keep saying, all signs show that this is a market that doesn’t want to go down. Anything can happen next, and I’m still expecting more sideways to downwards movement because this market is still overextended in the short term. But outside that, this is a very strong market.

And our old friends the big bank stocks are leading the way, of course. And that’s understandable when you consider that this whole rally is because of the insane Federal Reserve and all their money printing that’s flooding the system with liquidity. Banks are the primary beneficiaries of this cheap money, and, regardless of what you may think, The Federal Reserve is basically a banking-buddies club. It has no reserves and it’s not federal. It is a banking cartel, formed by bankers and run by bankers.

Back in the heady days before 2008, unemployment figures coming in better than expected used to be considered good news. But now it’s seen as bad news because that, markets assume, might mean the Fed puts the brakes on their legalized counterfeiting program. And what about the new Fed chairman coming in in January, Janet Yellen? She’s an unknown quantity. Will she apply the brakes??

In my opinion, she won’t. Janet Yellen is Sandra Bullock driving the bus with a bomb strapped to it, with Ben Bernanke as Keanu Reeves by her side, coaching her with these words: “Janet, whatever you do keep your foot on the gas. If the Dow goes below 12,500 we’re all toast!”

Enough frivolity. How can you profit from this? Well, don’t get in the way of a speeding bus. Ride the trend, however silly that trend’s cause. The banks are benefiting, and that’s why the financial sector is a big winner this year. The ETF for banks, XLF, is like a mirror image of the Dow and S+P:

129133

Break out, pull back, bounce. You now know the script. This is a powerful way to ride this trend. But maybe don’t commit all at once. I’ll be surprised if more pullbacks aren’t lurking out there.

Best,

Jim.

Bookmark and Share facebook twitter twitter

Leave a Comment

*