The Words that Moved The Markets
December 19, 2018 Fed Meeting – Fed Chair Powell on their Balance Sheet Reduction at $50B a Month:
“I don’t see us changing that”
SPX opened at $2547 on Dec 19th and proceeded to sell off post Powell comments until December 24th low of $2351.
January 4, 2019
“We wouldn’t hesitate” to change balance sheet policy if needed.”
As of Jan 8th, SPX is up 9.5% off the Dec 24th low and closed at $2574, fully reversing the ‘Powell Pout’ (as I like to call it) as markets embraced the ‘Powell Put’.
Let’s back up a bit:
Since mid-December, I was looking for a violent trounce then bounce. Here is my stock-bond-volatility ratio work that I presented in my Dec 13th newsletter, Why Do I See A Flash Crash Coming?
And here we are now – after I presented a bullish case for a year-end Santa Claus rally and sent further justification Jan 2nd in my post AAPL Falls and 4 Reasons Market Can Bounce, followed by my most recent case for a continued market rally Bulls Have Reason To Run
January 4th, 10:30 after Powell presented his “We wouldn’t hesitate” to change balance sheet policy if needed” speech:
I personally think the market is wrong in expecting the Fed to divert from either – rates or rebalancing – but a dovish-sounding Fed (today) is undoing the hawkish-sounding Fed (Dec 19th) and with that we likely climb back to those pre-Christmas levels: ~$2530-2547-2571-2597 in $SPX.
And maybe within the next week! Before the China Trade Talks ‘step into it’ and Earnings season kicks off – both of which will likely remind market participants of some very bad data points that have been temporarily forgotten: Huge Miss in ISM and a Huge Disappointment in $AAPLs pre-announcement!!
With that, my bias remains: long the Santa rally/January Effect – at least until Earnings Season. Samantha LaDuc
Since then, I have discovered some uber bullish reads from my Intermarket Analysis work. And clearly I need higher targets as we just reached the Dec 19th, pre-Xmas Powell Pout $2571 price target.
Next up: $2597 then maybe we jump the shark to $2639 SPX. But keep in mind, Powell next opens up his mouth Thursday and puts it all at risk…
Macro Musings
All year, I was looking for the Market to correct down to ~$2300 with the balance sheet run off at $50B in October 2018 at the same time the ECB was to reverse QE same time. But it was the ROC of the 10 year US Treasury that shot from 2.8% from 3.20% – which happened to time exactly with the Oct 3 Powell statement that we were ‘close to neutral’ – that really caused asset prices to plunge.
So what’s next for the Fed? I think they are damned if they do and damned if they don’t. Meaning: they can’t easily hike without QT or the curve inverts – causing PANIC. They can’t easily reverse their QT without hikes or the curve steepens and USD rips – causing PANIC.
That’s why I don’t think they change either their “two” rate hikes or rebalancing path in 2019. If they do, well then, I think volatility will re-emerge and reprice everything and my SPX $2277-2135 price targets will be achieved.
With that, don’t forget to hedge!
Samantha
Thanks for reading and please consider joining me in the LIVE Trading Room where we work through Value and Momentum trade ideas and set ups every trading day.
At LaDucTrading, Samantha LaDuc leads the analysis, education and trading services. She analyzes price patterns and inter-market relationships across stocks, commodities, currencies and interest rates; develops macro investment themes to identify tactical trading opportunities; and employs strategic technical analysis to deliver high conviction stock, sector and market calls. Through LIVE portfolio-tracking, across multiple time-frames, we offer real-time Trade Alerts via SMS/email that frame the Thesis, Triggers, Time Frames, Trade Set-ups and Option Tactics. Samantha excels in chart pattern recognition, volatility insight with some big-picture macro perspective thrown in.
More Macro: @SamanthaLaDuc Macro-to-Micro: @LaDucTrading
