Monday, February 2, 2015
SPY, DXJ and HEDJ Weekly Charts Showing Effects of Global Central Banker QE (Quantitative Easing)
Usually when a trader or analyst says "it's different this time," it usually isn't. But for the charts above, it is different this time. What's different in the three charts above?
First of all, the SPY is the ETF representing the S&P 500 (SPX), the DXJ is an ETF for Japan that hedges out the currency risk and ditto HEDJ is the ETF for Europe that is the new favorite flavor of long traders. The central bankers control the markets. The Fed started the obscene trip to Oz, skipping along the Keynesian yellow-brick road, with the QE1 announcement in March 2009 to stop the stock market selloff.
Everyone likes the good side of capitalism, when stocks go up, but no one wants to endure the pain of the bad side of capitalism where weak companies need to be washed out and go bankrupt to clear the decks. The banks were protected by the US government as was other financial companies such as AIG and even car companies like GM were bailed out with the taxpayer's money. Free markets and capitalism was spit on in early 2009.
The SPY chart shows the goose in stocks that results from quantitative easing. Note the QE was announced after a selloff move. Ditto in 2010 with QE2 then in 2012-ish as the move to QE Infinity occurs. In each case, the QE was used to prevent markets from correcting properly (perhaps crashing). The global central bankers are acting in collusion and this is verified by the BOJ joining the QE party in late 2012 to present. Again, note that the DXJ, a proxy for the NIKK, was in a downtrend and then catapulted higher with QE. The central bankers save the day. The bulk of the gains in the stock market in 2013 are mostly due to the weaker yen created by BOJ Governor Kuroda's money printing (weak yen=higher dollar/yen currency pair= higher Japanese and US stocks).
Now for the quandary in Europe. That is what is different. ECB President Draghi announces QE last month to lower the euro and pump stocks higher the HEDJ clearly responds positively (pink box). The central bankers are now pumping stocks to simply keep the perhaps ill-fated six-year Keynesian experiment going. European stocks have already benefited from the Fed, BOE, BOJ and even PBOC stimulus programs sending global stocks higher.
Many traders believe the ECB QE stimulus will send the HEDJ to the stratosphere just like the other two charts with Fed and BOJ stimulus but the set-ups are far different. Euroepean stocks are already bloated as is most other asset classes around the world including bonds. The central bankers have succeeded in creating bubbles in virtually all asset classes including stocks, bonds, real estate, art, collectibles and vintage and antique cars.
You must draw your own conclusion. Does unlimited juicing by central bankers create non-stop orgy rallies in this case the ECB QE that will send HEDJ to the moon, or, will the different set-up, where HEDJ is already elevated and not beaten down, cause the whole thing to fizzle? If the fizzle is the jizzle, as Keystone's main man Snoop Dogg would say, and the HEDJ stalls instead of climbing higher, that would signal a loss of confidence in the central bankers that could trigger a dramatic and historic global market event. The only safe place would be in cash but everyone would obviously try to squeeze through the same tiny doorway simultaneously. The ECB will be happy as long as the HEDJ inches higher but will become worried if it falters. Note the euro is up to 1.1347 and not dropping. Draghi may be firing blanks out of his QE money bazooka.
From a technical analysis standpoint for HEDJ, the daily chart is likely topping in the coming days so a pull back in the near-term is likely, say a top this week then down next week and the week after, however, the power of the upside move has a couple chart indicators long and strong on the weekly chart so the weekly chart would like to see higher highs after any pull back occurs. So if the HEDJ does stall and is unable to gain further upside momo, this would likely occur in the two to five week time frame moving forward. 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.