Stock Market Rally is Over

Done. Finito. Put a fork in it. Be short or be out of the way if you're an intermediate-term trader. Forget commodities and forget inflation. The next bear leg down in the stock and commodities market is here. Yes, it is possible that there could be an up day in stocks and commodities tomorrow, but I believe the intermediate-term top for the stock market is in and that a full on resumption of the bear market has begun.

The U.S. Dollar is rising from the dead for yet another intermediate-term rally, commodities are about to plunge deeply, and stocks are set to re-test the lows of March, 2009 and/or November, 2008.

Gold will once again separate from other commodities because it is not a commodity, it is money. That doesn't mean Gold stocks won't take a hit with the regular stock market, because they will. I'll be back in the Gold mining sector looking to buy in the late summer or fall depending on the price action.

I stuck my neck out and called for the stock market top in the New York Stock Exchange ($NYSE) on a daily closing basis - this is a foolish but fun game to play. I believe that call will be proven correct (my call on the Wilshire 5000 Index I believe will be off by about 20 points on a closing basis). The trend line of the $NYSE has broken to the downside after a tremendous and rapid bear market rally that has restored hope beyond belief in the middle of the worst economic meltdown any of us will witness in our lifetimes. Kudos to the green shoot marketers for drawing in so many retail bulls to the slaughter.

Housing hasn't bottomed, bank failures are set to accelerate, international trade is falling off a cliff, unemployment continues its rise unabated, and earnings are dropping precipitously around the world (except for the Gold mining sector). Get out of the stock market unless you are short or a long-term Gold stock holder. Continue to hold physical Gold as an insurance policy, cash equivalent and hedge against a geopolitical crisis that dethrones the U.S. Dollar.

To the charts. First, the New York Stock Exchange ($NYSE), which is less inclined to be assaulted by da boyz with their tape-painting / game playing (18 month daily candlestick chart):



The Volatility Index ($VIX or fear gauge) has broken out of its channel:



The regional banks, using the KBW Philadelphia Regional Banking Index ($KRX) as a proxy, made a top over a month ago and have just started a fresh second leg down:



The government does not create the primary trend and the trend is now strongly deflationary and down in almost all asset classes. Of course the government would like to inflate its way out of this mess, but why do people expect the government to succeed? Did I miss their demonstrated competence in handling financial crises?

If your answer is the printing press, need I remind you that Japan is still mired in a 19 year deflationary bear market despite the government "stimulating" the economy with their printing press for the past decade? Printing more debt cannot reverse a debt bubble collapse until market forces have run their course. Of course we will have inflation eventually, but deflationary collapses are brutal, fast and can wipe out years of inflationary gains in asset classes (as they have already started to do).