The Federal Reserve, having held the zero interest rate for 80 months(!) is out of gas

There is ample evidence of financial and economic weakness including the crash in both international trade and wholesale commodity prices. If the Federal Reserve had increased rates to a historical normal 2 to 3 percent by two to three years following the last recession, they would now be in a position to do something about the huge weakness ahead. But they are already at near zero and, most likely, will not appreciably increase the rate in December. So, they have painted themselves into a corner.

The stock market moved sideways this week. It is still below its high four weeks ago. That high is well below the late July high. The market will have to blast through these two highs to begin a new bullish trend. But resistance at these two highs will continue to increase the longer the stock market moves sideways.

In my chart of cyclicals divided by consumer staples, it’s staples far ahead, continuing the recent trend. In my table of stock market sectors, both the cyclicals and staples groups lost while the financial and technology groups gained. Sinking cyclicals signals weakness in the stock market. The big story is the continuing long-term deterioration of the basic-materials sector. This mirrors the world-wide huge amount of deflation that is just starting to pick up steam.

If you are not attuned to monitoring the stock market on a daily basis, your best move is towards safety. That means taking  your money out of stocks and especially mutual funds and ETF’s and into U.S. Government bonds. It doesn’t matter what the interest rate is (as long as it isn’t negative).

Get yourself ready to short stocks by getting margin configured to your brokerage stock account (it not already present). It is just as easy to make stock-market gains by shorting as it is by going long.

Here’s the relative-strength graph of the Basic Materials Sector:

basic_materials

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