Bill King: Deflation trade back in vogue

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This post is a guest contribution by Bill King*, well-respected and straight-talking author of The King Report.

For the past few weeks we have provided ample evidence, mostly via private industry data and oration, that “green shoots” are just another Bernanke equivocation and Street yearning.

We also opined that requisite “insider” banks have fleeced patsies for necessary capital, so market, beware.

Another of our themes is that the dollar, bonds and commodities keep checking the Fed across the big game board. And in order to avoid being checkmated, the Fed would have to sacrifice stocks.

The past week or so we have argued that this “second derivative” rally, which is the latest permabull/Street shill euphemism for “dead cat bounce”, is occurring on very poor technicals. Volume is contracting, which is contrary to the start of any bull market. And leadership is by the misfits, which is never good.

On June 16 we noted that technical indicators on the Dow Jones Transportation Average were declaring that its rally had ended; and because stocks were still in a ‘weekly’ sell, the daily ‘sell’ signals took on added gravitas.

Numerous pundits noted that insider selling had reached 2007 levels as did sentiment “jigginess”.

And finally, if all of the above escaped one’s consciousness, Goldman CEO Lloyd Blankfein, a week and a half ago, stated that this is not a recovery, the recession will be ‘long and protracted’, and any recovery would be ‘shallow’. Astute traders snickered that Goldman now had to be short.

Ergo, there have been enough warnings to induce the prudent to lighten up and move to the sidelines.

The FOMC Communiqué [on Wednesday, June 24] will be important only if it clearly indicates a significant change in policy. Anything else is a sideshow that will produce a fleeting effect on the markets.

So unless the Fed changes the table, the deflation trade is back in vogue. Stocks and commodities should fall; the dollar should rally. The big question is: will bonds rally or wallow?

… stocks CANNOT afford another spirited decline. 875 and 850 are support. 825 is the line of demarcation; a breach would induce great fear that the next down-leg was under way …The Dow Jones Industrial Average and S&P 500 Index are now a clear sell on a daily basis and have remained a sell on a weekly basis during the rally. Gold is a strong sell on a daily basis and is nearly a weekly sell.

The CRB, which is still a weekly sell, is now a daily sell … Gasoline and oil indicate sell, daily. Bonds and the dollar, both weekly sells, are close to signaling a daily buy.

Source: Bill King, The King Report, June 23, 2009.

* Bill King is market strategist with Chicago-based broker-dealer M. Ramsey King Securities. He has over 30 years’ equity trading and management experience with major Wall Street firms including Nikko Securities International, E F Hutton, Nomura Securities International, Dean Witter, and Jeffries and Co. To subscribe to The King Report, e-mail Bill at

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