Tuesday, March 22, 2011

Abigail Doolittle: Equity Markets Likely to Decline

Technical analyst Abigail Doolittle of Peak Theories Research is warning of a likely decline in the stock market. Specifically she writes that

The technical aspects of the S&P, DJIA, Nasdaq Composite and Russell 2000 suggest that the equity markets are likely to decline further after a day or two of relatively flat trading.

- Specific to the S&P and DJIA, each continues to mimic its trading from last April and May and if the comparison holds, a decent decline to at least 1,200 and 11,000, respectively, is suggested.

- The Nasdaq now has a Descending Trend Channel that implies it’s unlikely to climb much further from current levels and more likely than not to decline to at least 2,550.

- The Russell 2000’s technical aspects may be the strongest, however, in this regard with its mutually-confirming Broadening Formation, Diamond Top and possible Head and Shoulders and a shared target of 700.

- Overall, the equity markets look poised to continue to correct from a technical perspective and this could be the very thing to bring the recent relief rally to an end.
This dovetails quite well with the view that careful Fed watchers now hold, given that, although the Fed has been very active purchasing equities via QE2, much of these funds have ended up back at the Fed as excess reserves.

Money supply growth has gone from the 7.0% range in late 2010, to current  growth of under 5.0%. You can't sustain a capital goods price structure. e.g. the stock market, when you cut the support money flow by more than 40%. The only real question remains is whether we are headed for a mere correction or something more serious, i.e. will Fed money printing starts flowing into the system or will it continue to find it's way into excess reserves. Here's Abigail:


  1. Bob,

    Has anyone mentioned the fed cutting the interest rate on excess reserves instead of pursuing QE3? Maybe 10 bps or so.

    Since QE2 seems to have been sopped up by the banks putting the money into excess reserves, and the backlash was so loud when QE2 started, wouldn't it make sense for them to try something a little more arcane?

  2. Please have her update Silver so I can fade her....lol

  3. I don't have a clue what she is talking about. But, that's ok. I like watching her talk. More, please.