COMPQ Nasdaq Composite Daily Chart at 12-Year Highs Government Intervention Controls the Markets

The Nasdaq reaches 12-year highs. Price is now at levels not seen since November 2000, just after the Dot-com Bubble had popped in March 2000. What were you doing twelve years ago? The global government stimulus finally pulled prices higher to match the previous decades' levels. The pink boxes show how the governmental intervention with stimulus, pumpin' easy money, causes the market rallies, and once the stimulus peters out, or is not used in the case of money simply sitting at banks with minimal lending (velocity of money is on a milk carton), the rallies fade away.

QE1 saved the day in March 2009. QE2 saved the day from August 2010 forward. Operation Twist and the ECB's LTRO 1 and 2 saved the day last Fall.  And over the last six weeks, an 8% rally results due to the Fed and ECB jawboning stimulus, the Draghi comment on 7/26/12 where he says he will do anything it takes, the ECB OMT bond-buying annnouncement on 9/6/12, and China stimulus. Note the diminishing returns of the stimulus measures as the years play out. Markets built on a house of cards. The stimulus measures goal is to keep price above the 200-day MA, well, forever. We all know it will not last but when does forever end?

Note the positive divergence and negative divergence in this longer term time frame. Traders made lots of dough on the long side on the Iraq War and QE1 positive divergence bounces. The October 2007 top was identified with negative divergence, complacency and uber bullish euphoria. The Housing Bubble popped in the summer of 2005. Note the action over the last year. The governments managed to prop up markets with easing measures but the negative divergence in place is very severe.  Perhaps Chairman Bernanke will hold all his remaining bullets, of which one is a dud and one may not fire, and not announce QE3 until a negative divergence spank down occurs. The stock markets are stimulus-driven markets in this century far different than the markets in the prior century. The government interventions are losing their oomph as time moves along. The final chapter of the story has yet to be written. This information is for educational and entertainment purposes only.  Do not invest based on anything you read or view here.  Consult your financial advisor before making any investment decision.