Note the quantitative easing pumps, how they played out from trough to peak. The durations of the pumps are in a reverse Fib sequence; 13, 8, 5, .... What comes next? Yes, 3. Thus, when Chairman Bernanke announces QE3, at any time, probably in concert with LTRO3, this fourth major money pump for global markets is the kitchen sink approach, throwing everything at the markets possible, will only last as a three month rally. Thus, the Labor Day area is a great target for a market top, call it the month of September, should Bernanke move ahead with QE3 next week.
Perhaps many will read this and call it mumbo-jumbo but after Labor Day we will take a look back to see how it all unfolded. QE does not do much of anything at this point, people and businesses do not want loans, it does not matter that the rates are zero. Folks are too busy deleveraging debt and trying to keep their heads above water. Bernanke desired that a 'wealth effect' would be created with the money pumps, folks would see the stock market rise and feel wealthier prompting them to spend more thereby jump-starting the economy again. Instead, the result is a bloated, untrustworthy market, that only moves higher if the Fed provides more crack cocaine (QE). QE3 will be well recieved by traders but the fun will likely only last about three months if good ole Fibonacci has his way.
can't get the sPoOs to drop on the 8:30AM news release the bid is strong in the markets as the momo whores are salivating the VIX is under the 20MA this is crazy but I guess if I have to go long I will...
ReplyDeleteThat one of my favorite stops LOL we were talking before... the one where you got the direction wrong and just doubled it down the other way ;)
Regarding the timing of QE: While I agree the Fed will inflate, the timing I am unsure. If the 3 months is the duration of the rally, I would believe they will do it more toward the election like start in Sept to give the market a lift into the election to help the incumbent who reaffirm Ben's job. Your input?
ReplyDeleteHello Anon, if the situation was calmer, your scenario would be logical, but the situation is dire, as the European bond yields show. Also, the CRB Index is down at 270 or lower screaming deflation. It appears there is no more time, and even today, the fears are growing concerning Italy. The bank runs will also necessitate a quicker move. It simply appears that there is no time remaining, so QE3/LTR)3 would be expected sooner rather than later. Also, China dropped rates and you would have to figure this QE move will be a global coordination and China set the wheels in motion already.
ReplyDeleteKeyS, you have a good point. However, in the past QEs, the Fed waited after the market to drop and then introduced the QEs. The bond yields are higher but the market did not drop or the VIX has not shot up to signal fear yet. I would think market drop and VIX spike are more what are needed for the Fed to act like the last QEs. What do you think? Thanks for all your hard work in helping us understand the market.
ReplyDeleteAnon, you are correct with QE1 and QE 2 but not the LTRO's. That was why this years rally was so surprising and difficult to trade, they did that in December withou tthe markets tumbling first, very shrewd folks.
ReplyDeleteSo this would actually hint that QE3 could come at any time more so since they will jump in, and the 6/20 meeting is Tuesday, an ideal opportunity. You are correct about the VIX but remember, the VIX is not a slow moving item, you can look at it one second, go for a cup of coffee, and it may be far higher when you return, when it goes vertical it will be a sharp event. It could very well happen Monday depending on how Greece goes. It looks like Tuesday may be the day.
KS, great post! You are probably aware I use a lot of elliot wave theory and thus I am very familiar with fib (retracement) levels and numbers. However, I've never looked at the length of each subsequent QE, LTRO pump ('n dump) as a fib sequence. But, dude, you are so right. Not sure if we'll see the final act of our "great" leaders and subsequent inevitable killing of all markets (globally) at current levels. I'd like to see the mid 1200s revisited first. Once SPX is down to 400-500 we'll have a life-time buying opportunity ;-)
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