What have we learned so far in 2021? Simple: The relentless liquidity machine remains in full control. In addition to renewed and larger fiscal stimulus central bankers, including the Fed, have made it abundantly clear they will keep printing no matter what the data shows, no matter how much inflation there is (“let it run hot”). The Fed itself continues on its $120B per month QE program while the ECB has accelerated their program.
And while there’s been some angst around tech in response to rising yields and hyperextended small caps just recently dropped 11% the larger S&P 500 keeps chugging along and any threats of a trend break continues to be averted so far and indeed being saved yet again this week:
In short: Any tag of the 50MA or quick dip below is being bought and the upward trend continues unabated:
As long as this remains the case new highs can be expected every month to follow as that is currently the trend. New highs in January, new highs in February, new highs in March, little dips in between and anew the program continues.
If you reduce markets to its simplest form and just assume that central bank printing and liquidity remains the overarching driver of everything and the Fed will, as it has stated, continue to print well into next year then perhaps the best analog to the current action is the ghost of 2013.
What was 2013 but anything other than a big Fed print operation? It was after all in December of 2012 when the Fed upped its QE3 program from $40B to $85B per month and markets did nothing but relentlessly drift higher with the occasional dip into the 50MA early in the year:
There were a couple of angst moments in 2013. One came on the heels of then Fed Chair Bernanke merely hinting at maybe tapering the QE3 program. Markets immediately dropped to the 100MA and Bernanke quickly dismissed the idea. One wonders why (facepalm). The other 2 corrective episodes came during the regular seasonal corrective periods in September and October. All 3 episodes ended at the 100MA and $SPX continued to make steady higher lows during each episode followed by higher highs and QE3 didn’t end until October 2014.
I’ve said since last year this all remains a matter of central bank control and reality is the current tape suggests central banks remain in full control despite the occasional hiccups in yields, the dollar and tech.
It is not until the above mentioned trend breaks that one can get a glimmering prospect of central banks losing control.
So if 2013 repeats where can this all head? Steady up of course with 50MA/100MA tags along the way.
Indeed the broader confluence of trend lines, presuming constant central bank control, suggests a peak into February 2023 just above 4,500 $SPX:
The message: Rips to new highs remain selling opportunities for 50MA/100MA reconnects, while these very same reconnects continue to offer buying opportunities unless the trend breaks. In that case of course all bets are off and the market could find itself rebalancing in a major way including filling a lot of, if not all, open gaps back to November:
The largest correction in 2013 was brought about by Bernanke’s tapering comments. I suspect Jerome Powell will not subject himself to the embarrassment of a taper tantrum. Why even pretend and see markets drop. After all Jerome Powell has already learned his lesson in 2018 when he tried to maintain an “autopilot” stance on reducing the Fed’s balance sheet and rate hikes only to cower and completely reverse himself as soon market bombs were dropping all around him in Q4 2018. And so the Fed then, which currently states it will only raise rates once full employment is reached, instead cut rates three times in 2019 when unemployment was at 50 year lows of 3.5%. No, it’s never about the economy, that’s just the pretext. It’s about markets.
That was the lesson of the ghost of 2013 and it is the same now. Everything else is noise to be ignored. That is unless the trend breaks for then a whole heap of new ghosts would come scaring the bejesus out of everyone.
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Categories: Market Analysis
Sven, I love your charts and analysis. But you give the FED too much credit. They are not in control of markets….I know it seems like they do….but they don’t. And March 2020 was a great example. So, this market is poised to crash….and it will be tech that leads the decline.
March 2020 was a confluence of aggravating factors, including the pretense of complete economic shutdown. The Fed responded and has been solely responsible for driving the market to where it is today. Of course the Fed cant prevent a pandemic, but it sure can rescue the market from one. That is the point, and so long as that remains true, as Sven poignantly states, sell the rips and buy the dips until it stops working. And it will only stop working when the next big swan shows up.
The market was just poised for a decline in March 2020….if it was not the virus…people would have found another supposed reason for the decline. The market behaves independent of the news…even tough most people don’t think that way. Every day, there are 100s of reasons why the market should go up….and 100s of reasons why the market should go down. The Suez canal is blocked….why did the market not collapse? I am sure if it would have collapsed, they would have been saying it was because of the Suez blocage.
Liquidity and currency creation is controlling the markets. Sven is correct. It works until it doesn’t.
If it does crash, more “money printer go brrrr” will keep the trend higher. I don’t like it, but fighting this will keep you poor.
You mean that printing 4 trillion to stop the market crash was not the Fed controlling the market around Mar 20, 2020? Certainly it was fear that started the plunge Feb 21, 2020 but it was the approval to print trillions of dollars that stopped it and reversed the VIX.
Yes Sven, for The Fed, its all about the markets, to sustain their failure economy, and keep being the #1 in the world with fake printings XXX
abov e 200 day on all indices , follow the trend. your guessing permabear
Couple of thoughts. One, I don’t think the Fed cares about equities one way or the other. Their focus is on rates. Their actions are designed to control rates. I think you understand that, Sven, but then you say things like “Jerome Powell will not subject himself to the embarrassment of a taper tantrum” that make me think that maybe you don’t. Two, the Fed is not omnipotent. If they were, 2020 wouldn’t have happened, nor would have 2008 and 2000. No, I think you give them too much credit. It’s gonna get away from them as it always does. When it does, the exits will be blocked.
As I recall the steep break of taper tantrum was coincident with a brief liquidity crisis in China’s short term lending market. China’s markets had a brief freeze up and let me suggest that as the margin calls went out there that players were selling whatever they could to meet them and that means ROW assets. The taper tantrum was launched by the PBOC and some attempted tightening there, not by Bernanke’s words.
There is nothing new under the sun everyone. Even the markets behavior is unfolding as it should. Everything is broken and it will all crash quite spectacularly very soon and will be more painful than anyone dares to imagine. The deceleration in upward price movements will be uneven at first………..then all of a sudden reversions below the mean everywhere will surprise everyone. We are only 2 years into this Depression which will take about 5 more years to hit a bottom. Just wait for it…………it’s coming.
The covid is a good business for the USA, as a Jws colony, they don`t care how much lives cost.
As a worldwide war between the US against the rest of the world, and looks that the world doesn´t know it.
Respectfully, dude you living in “ LaLa Land …central bankers have a monopoly ..and all retirement money is injected in stocks irregardless. You can’t fight the federal reserve or treasury they can print paper it’s a monopoly …now China is digitizing commerce and by passing weak deteriorating dollar ( piece of crap )