Market Analysis

Magic Show

It’s that time again, the magic levitation show, but this one is a peculiar one. I talked a bit about it in Zombieland, but the continuation on the same path this week ahead of the Fed meeting is actually getting quite embarrassing as all pretense that markets are anything but a Fed subsidy program are being dropped.

Synchronized quantitative easing Morgan Stanley calls. And it’s apparently working, after all now have new highs again in front of the Fed policy announcement tomorrow.

Just like the the previous 2 times this year:

Again we have wedges on both $SPX and $VIX heading into this Fed meeting.

What has made this action so unusual is the historic shriveling of volume and the nonstop gap, ramp and camp program we’re seeing now:

From my perch this type of action can persist and price can drift higher, but is subject to future gap filling and therefore, risk building.

All of this action is of course now coming in conjunction with the liquidity bombs the Fed is throwing on markets on a daily basis.

I talked about these issues a bit yesterday on CNBC:

And so here we are today, the day before the Fed meeting and $SPX has again approached the upper trend line as $VIX has been compressing:

Tight wedges, consistent patterns suggesting another volatility spike to come.

The Fed will cut rates tomorrow with markets again at all time highs, just like in July and in September. What’s the primary driver of the rate cut decision tomorrow? Market expectations of course. The Fed can’t afford to disappoint markets.

The Fed is insisting they’re not running QE, but the market sure is acting like it is.

There is great hope that the Fed rate cut tomorrow will succeed this time to levitate prices above the trend line and keep it above. Perhaps that will be the case, but this renewed price levitation is again coming with negative divergence, uneven participation, and extremely tight price channels that are at risk of breaking if any sellers make their presence felt with volume.

For now enjoy the magic show, but keep in mind that all magic shows eventually come to an end and everyone is left wondering how they were deceived by the magician on the stage. Jay Powell will take the stage tomorrow and tell everyone that the economy is in a good place. But he’s using 3 rate cuts, $60B in monthly treasury bill buying and a daily $120B pro facility to pull off that magic trick.


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Categories: Market Analysis

15 replies »

  1. anyone who is able to trade this market profitably…is a true master! My hatts off fro this person. I gave up 6 months ago.

  2. Sven,

    I am impressed how well spoken you are on CNBC, and the fact that you still have some of your market articles listed here on CNBC. Life is more than money.

    I completely agree that the markets are being levitated on low volume via Fed subsidy programs for Wall Street, along with global synchronized quantitative easing, plus continued approximately $700b/year buybacks (which are dropping substantially this year, and next year, according to Goldman). What is ironic is the (M)agic (M)oney (T)ree policies for the general public will be enacted over the next 2-8 years, designed around the teachings of what the Fed has been doing for Wall Street. Call it a Fed Cult, a Fed Religion, it will turn into a Cult for All soon enough. So enjoy this rally over the next 7 days to 7 years, because Wall Street will not be able to get something for nothing forever…

  3. The S&P should go down tomorrow, hence there are Chinese Indices too, which are part of the game- and obviously the FED has, despite QE and REPO, let the market breathe in order to attract further buyers

  4. The only time price discovery has been triggered throughout this year is immediately after a Fed rate cut. That’s the only time the market works now as it ought to.

    It will be interesting to see where the real buyers may be now, given the extreme lack of volume and volatility. Shows most of the traders have temporarily shut up shop and not in the mood to transact at the moment.

    Real people don’t trust magic money as at the end of the day they intrinsically know it is just as much make-believe as they know a magician ultimately is. The mistake the Fed is making is treating us all like children.

  5. As long as the Fed supports the stock and bond markets, then why would one think the markets could fall down hard. It is not going to fall down because of the Fed ESF Put. Just wasting your time if one thinks the market is vulnerable.

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