Yesterday, the trading week started with a grand rollercoaster ride with the Nasdaq (QQQ) soaring to new heights but at the end of the ride closing lower for the day. Stock futures this morning are light green, so far.

Here’s what some of TalkMarkets contributors have to make of the current gyrations.

Seth Golden thinks market activity is more predictable than it seems, writing in Market Moves Are More Certain Than We Choose To Believe , a TalkMarkets exclusive, he says, “Yes, the market has a memory. Well, it has many memories to be quite frank, and as such Mr. Market has already priced in the initial move that has taken the S&P 500 into a new bull market.” Well, okay…

To be fair, Seth’s article is a good read and takes a look at how historical technical analysis can help us understand where the market is today. In this case Seth is looking at July 2009. One of his examples is the S&P 500 chart for July 2009:

“The S&P 500 chart above is a snapshot from Jun 1, 2009, through July 31, 2009. The final consolidation point in July found a bottom in the week ahead. Our final consolidation depth may have already happened two weeks ago when the S&P 500 dipped below 3,000 for a day. The 2009 market was a slower, more liquid market than what we are presented within 2020. Analogues aren't always perfect day-to-day or for the week, but over a month they very much can be and have been over time. Either way, the consolidation phase since the June highs in 2020 suggests a 2009 analogous break to new bull market highs is a near-term probability. The new bull market, post-consolidation phase high came on July 20, 2009. Something to keep in mind should dips presented and how to engage those dips, we think ;-)!”

Lance Roberts continues to be concerned with the endgame of the Fed’s quantitative easing initiatives. In his article, The Fed Is Trapped In QE As Interest Rates Can’t Rise Ever Again, he writes that because of all the QE, the Fed has put itself in a trap where interest rates can never rise again. Never rise again sounds ominous and Roberts provides the following warning list.

“If interest rates rise for any reason, such is when the “wheels come off the cart.” 

1) Economic growth is still dependent on massive levels of monetary interventions. An increase in rates will curtail growth as rising borrowing costs slows consumption.

2) The Federal Reserve currently runs the world’s largest hedge fund with over $7-Trillion in assets. Long Term Capital Mgmt., which managed only $100 billion, nearly derailed the economy when rising rates caused its collapse. The Fed is 70x that size.

3) Rising interest rates will immediately kill the housing market. People buy payments, not houses, and rising rates mean higher payments.

4) An increase in interest rates means higher borrowing costs. Such leads to lower profit margins for corporations. 

5) One of the main bullish arguments over the last 11-years remains stocks are cheap based on low interest rates. When rates rise the market becomes overvalued very quickly.

6) The negative impact to the massive derivatives market could lead to another credit crisis as rate-spread derivatives go bust.

7) As rates increase, so do the variable rate interest payments on credit cards. With the consumer already impacted by stagnant wages, under-employment, and high costs of living; a rise in debt payments would further curtail disposable incomes. Such would lead to a contraction in spending and rising defaults. (Which are already happening as we speak)

8) Rising defaults on debt service will negatively impact banks that are still not adequately capitalized and still burdened by massive levels of bad debt.

9) Commodities, which are sensitive to the direction and strength of the global economy, will plunge in price as recession sets in.

10) The deficit/GDP ratio will surge as borrowing costs rise sharply. The many forecasts for lower future deficits will crumble as new estimates begin to propel higher.”

There are plenty of charts in the article to back all this up. In sum, there is no easy way for the Fed to extricate itself from its own “liquidity trap”.

Timothy Taylor in his article, The US Dollar In The Global Economy, discusses the role of the U.S. dollar around the world.  The graph below shows just how important the dollar is in world trade as compared to U.S. participation in the global economy.

In all cases use of the US dollar is outsized to the US share of global trade. On the other hand accounting for 20% of global GDP speaks for itself. Taylor’s article seems to be largely educational though he does conclude with reminding us that the importance of keeping enough dollars in circulation is the responsibility of the Fed, “With the widespread use of the US dollar around the world and the interconnections of the world economy, the Fed has little choice but to accept some responsibility for the availability of US dollars not just in the US economy, but around the world.”

Michael Kramer updates readers on a daily basis on the indices and some of the stocks that he follows. In his current post, Stock Rip, Then Dip, In A Rapid Afternoon Reversal, his take on the Nasdaq is as follows: “I tend to think the Nasdaq is still overbought by a lot and that it needs to fall to the other side of the trading range. What happens after, we will find out when we get there. There is still a considerable distance the QQQ could fall from here. The first level I would look for is at $251, and then after that somewhere around $247. It would be about 5% (down) from the closing price Monday.”

Here’s the chart:

With regard to the S&P 500, Kramer says, “I would think the next meaningful level for the S&P 500 would come around 3,115. The index pretty much failed at resistance around 3,230, which also happened to be the prior high in June. Now we have to worry about the potential for a double top pattern, but we have some time to worry.”

As regards to what’s on deck for today, he like the rest of us is waiting to see.

To the extent that we can measure signs of recovery by upticks in activity as economies emerge from the shutdowns experienced in the first half of the year Iris Pang of ING Economics notes in China: Surprise Rebound In Exports And Imports, that in the second quarter exports increased indicating signs of recovery and that imports increased primarily to shore up the country’s food supply, “Looking at the export items, we found that clothing and footwear exports have increased, which signals that external demand is recovering. The data shows positive signs of a global economic recovery in the second half of the year. Import growth was mainly due to imports of grains (excluding soybean), which should serve the purpose of securing food as floods, which began in June, threaten to destroy land and crops.”

Given China’s role as a supplier of consumer goods to many world economies, an increase in export activity can certainly serve as a barometer of increased economic activity elsewhere.

 Ace Frehley, guitarist and co-founder of the rock group Kiss said, “My life has been a roller coaster ride, but somehow I've always been able to land on my feet and still play the guitar.”

Have a good week and hold on to your guitar.