In failing to take a “healthy” correction to the equivalent of SPX 1350 to 1450 from the upside target zone of 1550 to 1590, the market is now running on policy and momentum. Hence we now dub thee Young FrankenMarket; Ben Bernanke’s creation, sustained by government and legacy MBA debt, following Alan Greenspan’s monster that was stitched together with artificially low interest rates that ultimately manifested in a huge commercial credit bubble.

Payrolls came in at 165,000 and an over bought, over loved* market popped its cork and exploded into blue sky. It had to be more than an okay ‘jobs’ report that did the trick. It was likely the combination of a still inflating Fed (and ECB, Europe popped hard as well) with some data that was good enough, but not so good as to call into question the Fed’s systematic inflation regime. This is Bernanke’s FrankenMarket, created by policy.

After making bearish patterns and/or negatively diverging from the Dow and S&P 500, the Russell 2000, Nasdaq 100 and Semiconductors all broke to new all-time (RUT) or recovery (NDX, SOX) highs on Friday. This left one notable holdout, the often-watched Transports. Since I normally do not give much weight to Dow Theory, I’ll not do so now. But it should be noted that the Trannies are not at new highs… yet [edit: They are now].

So it appears that recent writing I have done about a topping process may have been incorrect or at least, early. The current period reminds me a lot of Greenspan’s monster that emerged from the credit bubble early last decade, FrankenMarket as I called it in the first public article I ever wrote. [Read more...]