SPX Daily Chart 2008-2012 Five Major Quantitative Easing Steps Follow Fibonacci Sequence

The Fibonacci Sequence is a series of numbers that repeat over and over in science and nature, even in the snowflakes that dot the air in rural Pennsylvania this Christmas Eve. The Fibonacci Sequence is 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233, etc.... Do you see the pattern?  Simply add the two numbers to produce the new number, to infinity.  The Fibonacci numbers are also useful as moving average numbers to assess a stocks performance. Keystone's 30-minute chart indicator uses the 8 MA and 34 MA cross.

There are five major quantititative easing steps over the last four years and each QE results in a decreasing Fibonacci Sequence number in relation to the time duration of the QE rally. As markets crashed in late 2008 and early 2009, the Fed saved the day with money-pumping, QE1.  This created the strongest rally of all the QE's, from 666 to 1230, about 85%, that lasted 13 months.  All good things come to an end, and the propped up markets collapsed in 2010.  This prompted Chairman Bernanke to announce QE2 at Jackson Hole in August-September 2010 creating another strong market pump, from 1040 to 1370, about 32%, that lasted 8 months.

Once again, the propped up markets collapse with the August 2011 crash. The debt ceiling debacle created much of the turmoil. Interestingly, solar flares were firing off strongly just as the crash began. So the markets fell down the rabbit hole once again but this time were saved by the first blatant global monetary intervention in the history of the world, a double whammy, where the Fed started Operation Twist to provide a bottom in the markets in September-October 2011, then the ECB, in a coordinated move, stepped in with LTRO1 and stating that LTRO2 is coming quickly behind as well. This creates the third major QE rally which takes the SPX from 1100 to 1425, about 30%, that lasted 5 months. The result of the artificial money pumping and market propping again results in the May collapse this year.

In June-July, however, the Fed and ECB, now kissin' cousins, are behind the scenes setting up another money-pumping scheme which results in Draghi announcing on 7/26/12 that he will support the euro by all means necessary and do whatever it takes. Markets explode higher as junkie traders receive the crack cocaine fix the central banker pushers keep providing. The interesting aspect of this fourth major push of QE is that the CB's did not wait for the markets and economy to slip into deflation as they did for QE1, QE2 and the Operation Twist and LTRO1 and 2 easing. All three of these QE's were performed when Keystone's Inflation-Deflation Indicator fell into the deflationary area under 2.9. Type 'Inflation Deflation' into the search box above to bring up prior articles. As a quickie rule of thumb, simply watch the commodities index, $CRB, to see if it drops under 290-ish which signals an economy already in disinflation falling into a deflationary spiral. If the CRB drops under 270 and stays down there a while, the U.S. is heading for a Japan deflationary funk scenario for the coming years. So QE3 results in a move from 1280 to 1475, this year's market top, about 15%, that lasted about 3 months. Again, QE3 was the first money pumping that occurred where the markets are being goosed without waiting for them to collapse first.  This smacks of desperation by the Fed since they are now throwing the kitchen sink at the markets with the printing presses running 24/7.

Next comes the September top and October-November market selloff. The SPX rallies from 1350 to 1450 on hopes and dreams from QE4 Infinity and Beyond. QE3 Infinity only lasted three months but was supposed to be the perpetual money fountain. QE3 was announced at SPX 1438 and price sits below. QE4 was announced at SPX 1430, exactly where price now sits.  What a sad outcome all the money pumping has provided, obviously the effects of QE are clearly diminishing over time, the time durations are shorter and the percentage moves higher are decreasing.  The Fib sequence for the five major QE's are 13, 8, 5, 3, and 2, and the current QE4 Infinity and Beyond Rally is about two months old.  The next Fib's are one and one.  Thus, the global CB's may throw the fixtures from the kitchen sink once or twice more but it appears that time is running out for QE.

The main issue is the velocity of money. You can print all the money in the world but if people do not want loans (deleveraging continues), and the ones that do want a loan cannot qualify due to strict requirements, as well as businesses not wanting any loans, the money sits and collects dust, the multiplier effect with velocity, as money is placed into circulation, does not occur. The Fed is pushing on a string. This is why the QE's are having less and less oomph. The indicators are leaning bearish on the chart.  Also of interest is how price falling under the 200-day MA each time serves as a prompt for the Fed, and ECB, to drop money from helicopters. One of the mini-rallies ahead may be when Spain formally requests a bailout (this action will allow the ECB to conduct bond-buying which helps Spain and Italy) but the effect may be limited. The BOJ will be easing in early 2013 as well.  Overall, the chart clearly shows how the sun is setting on QE as time marches on. The Fed has always hoped that the economy would recover over time, as the QE's increase the wealth effect and encourage consumers to spend to fuel an economic recovery, but alas, this Keynesian exercise may end up as one of the tragic mistakes in economic history.  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.