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FED watchers scratch heads BUT SPX 3300 doable by September


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#1 dTraderB

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Posted 13 July 2019 - 03:31 PM

Of course, not!  Pushing on a string can achieve only so much; 50bps at end of this month will create another 1 or 2 % but most of that is baked in.  This has been a tiring but fun week after a fairly slow Summer 2019. Let's hope we can continue this way until September.

 

Expect a blow-off from now until then and what? Maybe earnings that have been lowered can help with another 2 to 3%, and then what?

 

Levitation cannot continue indefinitely, I have seen this type of market many times before and you trade it like this: ST you do not fight the trend, trade it; IT & LT you pick your targets and wait for best or optimum short entries, but again do not be a hero or you will be a dead one. 

 

Markets will fizz  and sputter; with low volume it can be yanked down and up, but the trend can easily be discerned. 

 

This BULL will fizzle out in a month or two, with shallow pull-backs, except if there are major geopolitical events. 

VIX single-digits is quite possible as well as VXX 10 to 20% decline from here. 

 

It is important not to trade every pullback as if it is the start of a bear market; more important, stick with the trend ST, and wait for the end of this leg of the BULL market. It could be the final one.

 

I am posting the whole article from the Financial Times, in case some of you cannot access it.

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https://www.ft.com/c...82-2df48f366f7d

The Fed’s dovish turn looks like a surrender

Pressure from Trump makes it harder for the central bank to do its job

THE EDITORIAL BOARD

 

 During his testimony to Congress this week, chairman Jay Powell made the case for the Fed to cut interest rates © Reuters Share on Twitter (opens new window) Share on Facebook (opens new window) Share on LinkedIn (opens new window) Save Save to myFT The editorial board YESTERDAY Print this page24 The Federal Reserve is expected to cut interest rates soon. Many will view such cuts as a surrender to pressure from Donald Trump. But the Fed must not become the president’s poodle. It needs to be careful about what it does. In testimony to Congress this week, Jay Powell made the case for the Fed to cut rates, by emphasising “uncertainties about the outlook”. In response markets expect a cut of 25 basis points in July. Consensus forecasts, according to Bloomberg, are for one further cut this year. Some analysts forecast two more — which would bring rates back to where they were in May 2018. It would also mean that real short-term interest rates were close to zero, again. Yet Mr Powell also insisted in his testimony that “our baseline outlook is for economic growth to remain solid, labour markets to stay strong, and inflation to move back up over time to the committee’s 2 per cent objective”. Gross domestic product increased at an annual rate of 3.1 per cent in the first quarter. This rate is above potential, as is shown by the continued fall in unemployment from 3.9 per cent in December 2018 to 3.7 per cent in June, which is “close to its lowest level in 50 years”. Given this, it is hard to see a strong case for a cut, let alone a series of cuts. So what might explain it? Mr Powell himself pointed to two considerations. First, there is a degree of weakness in domestic demand, notably in business investment. Second, and presumably more significantly, he pointed to “ongoing cross-currents from global growth and trade”. Cuts might then be seen as insurance against the possible consequences of such threats. The irony is that a principal explanation for lower interest rates would be Mr Trump’s trade war. He is then in effect killing two birds with one stone. The Fed can only contemplate taking out such insurance because inflation is so low. Indeed, there are two remarkable features of the economy. One is that nominal demand has not really exploded upwards, despite the combination of loose fiscal and monetary policies, by historic standards. This supports the hypothesis of “secular stagnation” — that is, structurally weak demand. After all, if rates were now cut, the peak in this cycle would be less than half of what it was in 2007. The other is that inflation and inflation expectations remain so well under control. On the personal consumption expenditure index, core inflation was just 1.6 per cent in the year to May 2019. The gap between yields on inflation-indexed and conventional 10-year bonds suggests expected inflation is just 1.8 per cent. Persistently low inflation greatly reduces the risks of taking out the “insurance”. But that does not make it wise. One risk is that the strong economy ultimately does what strong economies do: raise inflation faster than people expect. The other is that, given the balanced nature of the argument, the Fed will be seen as dancing to Mr Trump’s expansionary tune. Yet the Fed is an independent institution for a very good reason. It is not its job — and it must not be seen to be its job — to deliver re-election to the president. This then is a fine judgment. It may be that the world economy will turn down, in which case the Fed is rightly protecting the US economy from the fruits of the president’s bad trade policies. It is also possible that the US economy will continue to expand robustly, in which case the Fed will be adding fuel to the fire, for insufficient reason. Yes, persistently weak inflation gives room to cut. But the risks of being seen to bow to political pressure and to fuel asset market bubbles are large. The Fed must remain both data-dependent and cautious, not terrified of shadows.

 

https://www.ft.com/c...82-2df48f366f7d

 

 



#2 dTraderB

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Posted 13 July 2019 - 03:33 PM

Come one, guys, it's part of the cautionary strategy, and also to do the CYA thing so the FED cannot be blamed for any sudden townturn. 

 

What's a 50bps as the price to do that? And, when POWELL does it now in July at record equity levels and a booming economy they cannot blame him for being late, right? You have to go beyond mere financial analysis to understand the FED's strategy. 

 

Powell’s testimony leaves Fed watchers scratching their heads

https://www.marketwa...eads-2019-07-12



#3 dTraderB

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Posted 13 July 2019 - 03:35 PM

No, there is a limit to how much the market can take because pretty soon they will begin to wonder what the heck is so bad that the FED is printing free money to prevent what???

 

Should investors prepare for a “shock and awe” campaign from the Fed?

Powell may look to take markets by surprise

https://www.marketwa...-fed-2019-07-13



#4 dTraderB

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Posted 13 July 2019 - 03:38 PM

Good points but they have lowered earnings expectations so much that the now much lower earnings will be interpreted as a beat....

 

 

KEY POINTS
  • From J.P. Morgan to Microsoft, S&P 500 companies begin rolling out earnings in a big way in the coming week, providing the next big challenge to the stock market rally.
  • Stocks rose to record highs this past week, as Federal Reserve Chair Jerome Powell assured investors the Fed is ready to act to cut rates, if needed, to defend the economy from weaker world growth and the impacts of the trade war.
  • Now it’s the impact of both of those factors — slowing growth and the trade war’s tariffs — that could show up in corporate earnings, making them the latest risk for the market.
  • https://www.cnbc.com...-190712-ec.html


#5 dTraderB

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Posted 13 July 2019 - 03:41 PM

True, but you cannot trade day to day on this expectation

 

The Federal Reserve used to be the adult at the markets’ party. Now it’s keeping the fun going by moving to cut interest rates.

Taking away the punch bowl when the party gets going. Federal Reserve Chairman William McChesney Martin’s famous description of what central bankers are supposed to do is so last century.

Now, the punch bowl gets spiked if the party seems to slow down, not by the delinquents sneaking vodka in water bottles, but by the supposedly sober chaperones.

 

So the stock market partied on, with the Dow Jones Industrial Averagetopping 27,000 and the S&P 500 index eclipsing 3000, after Jerome Powell, the current Fed chairman, all but confirmed in congressional testimony that the central bank will be lowering its key federal-funds target at its next policy meeting at the end of the month.

 

https://www.barrons....14?mod=hp_DAY_1



#6 dTraderB

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Posted 13 July 2019 - 03:42 PM

Watch BOEING stock carefully during the next two to three weeks



#7 dTraderB

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Posted 13 July 2019 - 03:44 PM

Here comes another canary-in-the-coal-in warning

 

 

A stock-market index of small caps is at its weakest versus the S&P 500 since the financial crisis, suggesting the market has a liquidity problem.

Although the three main U.S. stock indexes — the Dow Jones Industrial AverageDJIA, +0.90% S&P 500 SPX, +0.46%   and Nasdaq Composite indexCOMP, +0.59% — continue to climb to records, there are some early warnings that trouble lies beneath the surface of an otherwise run-of-the-mill ascent to fresh heights.

Don’t missOpinion: Either the Dow transports or the Baltic Dry Index isn’t telling the truth.

And while markets can sometimes defy logic and clamber ever higher, the following chart suggests investors’ appetite for assets considered risky, like stocks, has ebbed to levels not seen since the 2008-09 financial crisis:

MW-HN146_RUT_SP_20190711141102_NS.png?uuFactSet, MarketWatch

One gauge of that is relative strength, which technical analysts use to gauge one asset’s performance in relation to another. In this case, the Russell 2000 Index of small-capitalization stocks RUT, +0.78%  has actually been stable on an absolute basis over the past six months, but that is not a good thing when the S&P 500 index SPX, +0.46%  tracking large-capitalization stocks has surged to all-time highs above 3,000.

On Thursday, the S&P 500 rose 0.2% to a record close, while the Russell 2000 fell 0.5% to close 10.5% below its record, which was reached back in August 2018.

 

Why is it important to measure how small-cap stocks have performed relative to large-caps?

“Small caps are more sensitive to liquidity issues, both good and bad,” said Tom McClellan, publisher of the McClellan Market Report, in a recent research note. “They are like the canaries in Great Britain’s coal mines during the 1800s, birds who were more sensitive to bad gases than the big burly coal miners.”

When the Russell 2000 is outperforming the S&P 500, it means there is enough money sloshing around that investors are willing to pile into riskier assets. When the Russell 2000 is underperforming, it suggests investors are losing their appetite for risk, and the market is getting ripe for a selloff.

“If the canaries keeled over, it was wise to get one’s tuchus out of the mine before one falls victim to those bad gases,” McClellan said. Read more about Tom McClellan.

MW-HN150_Russel_20190711142601_NS.png?uu

Small-cap underperformance is coming at a time when many feel the biggest headwind for the stock market and the economy is all the uncertainty surrounding the U.S.-China trade war, which should weigh on large-cap multinational companies more than small-cap companies that have more domestic exposure.

“The message here is that something is wrong with liquidity, and it is affecting the small-caps but not so much the big burly large-caps,” McClellan said. “This ratio does not tell us what that ‘something’ is, only that there is a problem.”

Another chart suggesting liquidity is drying up is the relative weakness in high-yield corporate bonds:

https://www.marketwa...2?mod=hp_LATEST



#8 dTraderB

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Posted 13 July 2019 - 03:47 PM

I am down on the meager QQQ Put position -- QQQ was somewhat lagging the rest of the market for most of the day then rose in the afternoon. I preferred to let it ride over the weekend and then try to buy a few puts on Monday and rest of next week. 

 

Small VXX position is down and TLT is surprisingly profitable, not much but a pleasant surprise.  NQ was the star of the week for me, one of the best NQ week for 2019. 



#9 dTraderB

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Posted 13 July 2019 - 03:57 PM

I do not blame them, would have done the same:

 

Lawrence McDonald Retweeted Helene Meisler

Companies buying back stocks with shareholder capital and selling personal shares in size, nice.

Lawrence McDonald added,

D_Wunc7W4AABN5e.png
Helene Meisler @hmeisler
I guess insiders have a strong view.
8:01 AM - 13 Jul 2019 from Manhattan, NY


#10 dTraderB

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Posted 13 July 2019 - 03:59 PM

Fizzing and sputtering as it rallies but I still think there is at least SPX 30 points to an intraday ST high

 

David Larew @ThinkTankCharts
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S&P 500 Hi Lo Indicator - 98.84 - Possible Top on Monday or Tuesday??? All trend lines are noting this. No Volume, no problem.... :)

D_WckGAXYAAFVkN.jpg
4:02 AM - 13 Jul 2019