The stock market has been in a total disconnect mode from economic reality over the past 6 weeks all based on the glimmer of hope that an economic turnaround may be lurking on the horizon over next 6 months or so.

It’s too early to tell if yesterday’s sharp sell off means that the markets have shifted back to reality mode, or if this was a one day interruption of the recent rally.

This past weekend, Dr. Housing Bubble had this to about Wall Street being disconnected from Main Street:

The stock market at least in its current form is a horrible indicator of the actual economic carnage falling upon the majority of Americans. Most Americans are witnessing the current rally and wondering why the massive run up (largely in financial related stocks) is going forward while they are getting called into supervisor offices behind closed doors and being laid off or seeing their hours cut back.

Wall Street has completely disconnected from Main Street. It is also hard for many to understand how they are having their limited income being taxed to finance the bailouts of Wall Street and financial cronies while they are asked to do more with less. They are seeing these same institutions, alive because of the massive funding from the American people since our government ideally should reflect the will of the majority, shut off credit lines and raise rates while the government through the U.S. Treasury and Federal Reserve showers the banks and Wall Street with easy low rate financing thanks to the American taxpayer. Welcome to the new America. Where unemployment is good news for Wall Street and bailouts are now seen as a new source of revenue for financial companies. New accounting students will learn how to incorporate bailout funds as a new source of revenue.

It is easy to turn a profit when trillions are funneled into the financial system. This is like jumping into the blue ocean and being shocked you got wet. Yet the problem of course is very little of this money is trickling down to the real economy; you know, the economy that doesn’t involve Bloomberg Terminals and pinstripe suits? Imagine a giant person eating at a table and the mice are running around on the floor hoping to pick up the scraps. Guess who the mice are?

The last few weeks have been great for the financial companies because they are now operating in a pseudo reality that is for the privileged few. These are the new financial overlords and all it took was the collapse of debt to show them for what they truly are. Many people for the last few decades have confused debt with actual wealth. That is a mistake we are now coming to terms with.

As always, Dr. Housing Bubble is right on with his observations, and I suggest you read the entire article if his viewpoints resonate with yours.

I still believe that this rebound over the past 6 weeks is a classic bear market rally. If you were fortunate enough to participate, and you regained some of your losses, you are well advised to implement some kind of sell stop discipline in case we are heading back south with the long-term bearish trend resuming its course.

About Ulli Niemann

Ulli Niemann is the publisher of "The ETF Bully" and is a Registered Investment Advisor. Learn more
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