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Another Day, Another Record High and Who Knows Where It Will Go

NEW YORK (TheStreet) -- Another day, another closing all-time high in the DJIA and the S&P 500 on Monday, the first trading day in June. The DJIA closed up 26.46 points at 16743.63 while the S&P 500 closed up 1.40 at 1924.97. The Nasdaq finished down on the day at 4237.20 losing 5.40 points. The Russell 2000 index continued its losing ways, down 5.60 at 1128.90.

In many ways, the Russell 2000 index is the only index that is acting in a rational way. The economy is showing many "Growth Slowing" indicators and the Russell 2000 is a growth index. So, as the economy continues to slow the Russell 2000 index is in a Trend Bearish formation with many small caps stocks bearish. That is the way things are supposed to work.

Then you have the DJIA, S&P 500, and Nasdaq all in "Trend Bullish" formation. A two-tiered market, if you will. I have been mentioning this negative divergence for a while now but things do not seem to change. How long can we have a divergent stock market?

I do not have the answer to that question. But I suppose that as long as the Federal Reserve continues to print the money, the markets will continue to rise. I suspect the Fed will move to slow the taper of quantitative easing as the economy continues to show signs of slowing.

I am sure I am in the minority on this point. I expect the Fed to announce a slowing of the taper as we move forward in the summer months. If the Fed continues to taper that will lead to higher inflation and higher rates which will destroy the economy. If they continue printing money they will continue to burn the U.S. dollar and destroy the dollar hegemony.

In sum, the Fed has no good alternative. It is backed into a corner with no way out. What started out as a positive QE program a few years ago has been parlayed into an uncontrollable printing machine.

When this all comes crashing down will happen sooner than most think. This will be an unprecedented avalanche that will wipe out many middle American's savings. As a matter of fact, when all is said and done, do not be surprised to see a new international currency as the dollar becomes worthless.

This is a bubble that has been created from the misguided Fed policies of the past. In essence, this will be the third Fed created bubble in the last 12-14 years.

So, party on hedge fund community. You are the only players in the market. I will continue to pick my spots in this market and attack. Currently, those spots are on the short side of this market. The Dow S&P and Nasdaq will all be approaching extreme overbought on Tuesday with a green open.

The gold sector is my favorite oversold for long positions while the semiconductor sector is the most overbought.

On Monday. I continue to hold my AmerisourceBergen (ABC) short and Barrick Gold (ABX) as my long position.

At the time of publication the author was short ABC and long ABX.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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Chart of I:DJI
DOW 17,773.64 -57.12 -0.32%
S&P 500 2,065.30 -10.51 -0.51%
NASDAQ 4,775.3580 -29.9330 -0.62%

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