Thursday, July 19, 2018

SPX S&P 500 3-Minute Chart; Chairman Powell's Closet Dovishness Creates Stock Market Rally

Stocks are chopping sideways at elevated levels after Federal Reserve Chairman Powell's twice-yearly testimony before the Senate Banking Committee (Tuesday) and House Financial Services Committee (Wednesday). Stocks rally on Tuesday after Powell proclaims further gradual rate hikes ahead but is quick to say the path is data-dependent (he will stop the rate hikes at any sign of softness in the economy). Traders love to hear dovish Fed talk.

On Wednesday, Powell doubles down on his closet dovishness when he is asked about inflation and deflation. Powell leans dovish saying he is 'more worried about deflation'. Comically, he is hiking rates because the presumption is that he is worried about inflation. His dovishness means the Fed will remain accommodative so stocks rally as is the case since March 2009. The SPX pops 3 points in a few minutes and runs from 2808 to the HOD at 2817, 9 points, over the next hour. The central bankers are the market.

From Keystone the Scribe's daily chronology,

At 11 AM EST, Chairman Powell says markets are balanced between inflation and deflation. This is a surprising statement since Powell endorses the gradual rate hike path so he must believe in inflation. When pressed on the issue, Powell proclaims that he is “more worried about low inflation still.” Bingo. Powell flaps his dovish wings. He is hiking rates but remains more worried about disinflation and deflation. He will likely be quick to halt the rate rises if the economy falters. Stocks begin rallying immediately since the central bankers are the market.

The S&P 500 gains 2 points to 2812. INDU 25175. COMPQ 7839. RUT 1683. VIX 12.23. WTIC 68.09. Brent 72.21. Gold 1226.

At noon, the SPX is up 6 points, +0.2%, to 2815. The Dow gains 76 points to 25195. The Nasdaq Composite loses 4 points to 7851. The RUT is flat at 1688. VIX 11.93. A dovish Federal Reserves sends equities higher well off the day's lows.

The central bankers are the market. If you do not understand this simple fact, you cannot adequately prepare for what is coming. 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.

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