The S&P 500 is More Overstretched Than At Anytime in 30 Years

by Phoenix Capital Research
The markets are running out of steam as there is no longer a Bernanke talk to look forward to (he won’t be at the Fed’s Jackson Hole meeting in August) and options expiration is ending.
Bernanke has a thing for options. For some reason, over the last five years, he had a tendency to expand the Fed’s balance sheet on weeks when options were expiring. He even did this on weeks when the Fed technically was not engaged in a QE program.
In simple terms, whenever it’s time for options to expire, a time when Wall Street wants to manipulate the markets so it can shred options traders, Bernanke will juice the markets EVEN if there is no formal Fed program in place.
So it’s a little hard to stomach that Bernanke just happened to say that QE would continue for some time the week before options expiration week… especially given that the Fed is so divided on QE with half of Fed members wanting QE completely stopped by the end of 2013.
Bottomline: the Chairman went rogue and did it at the precise time when stocks were in need of a major boost. This is not coincidence. And now that this is over we have to wonder what’s next.
Well among other things we see that IBM, Intel, eBay, Google, Microsoft, Blackberry have all missed revenue estimates. US GDP is turning sharply south again with the second quarter currently posting 1.2% growth.

Stocks are diverging from everything under the sun: earnings, US GDP, the Nikkei, the list goes on and on.
And we are clearly in a bubble. Arguably the biggest stock bubble for the S&P 500 in the last 30 years. Below is a weekly chart of the S&P 500 relative to its 200-week moving average.

Stocks may hit new highs, but this rally has all the hallmarks of a blow off top, coming at the final stage of a bubble. Indeed, stocks have not been this overextended in over 20 years… that includesthe 2007 peak. Soon after we reached that point… we then plunged into one of the worst market Crashes of all time.
By today’s metrics, this would mean the S&P 500 falling to 1,300 then eventually plummeting to new lows.
This is not doom and gloom. This is a fact. The Fed has created an even bigger bubble than the 2007 one.
The time to prepare for this is not once the collapse begins, but NOW, while stocks are still rallying. Stocks take their time moving up, but when they crash it happens VERY quickly.

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Best Regards
Graham Summers