Best of the Week
Most Popular
1. Trumponomics Stock Market 2018 - The Manchurian President (1/2) - Nadeem_Walayat
2.Yield Curve Inversion a Remarkably Accurate Warning Indicator For Economic & Market Peril - Dan_Amerman
3.China is Now Officially at War With the US and Japan - Graham_Summers
4.Markets Pay Attention Moment - China’s Bubble Economy Ripe for Bursting - 16th Jul 18 - Plunger
5.Stock Market Longer-Term Charts Show Incredible Potential - Chris_Vermeulen
6.U.S. Stock Market Cycles Update - Jim_Curry
7.Another Stock Market Drop Next Week? - Brad_Gudgeon
8.The Death of the US Real Estate Dream - Harry_Dent
9.Gold Market Signal vs. Noise - Jordan_Roy_Byrne
10.The Fonzie–Ponzi Theory of Government Debt: An Update - F_F_Wiley
Last 7 days
Why Oil Prices Fell -- Stockpiles or Price Pattern? - 18th Aug 18
Why The Uranium Price Must Go Up - 18th Aug 18
Land Rover Discovery Sport 90% Motorway Driving MPG Fuel Economy in ECO Mode - 18th Aug 18
GDX Gold Mining Stocks Q2’18 Fundamentals - 18th Aug 18
SPX Losing Gains - 17th Aug 18
What Gold Is Not - 17th Aug 18
Dollargeddon - Gold Price to Soar Above $6,000 - 16th Aug 18
Stock Market Higher Again, Correction Over? - 16th Aug 18
Up Your Forex Trading Game - 16th Aug 18
Large Caps Underperformance vs. Small Caps is Bullish for Stocks - 16th Aug 18
“The Big Grab” - Failing Pension and Retirement System - 16th Aug 18
How US Indo-Pacific Vision Forgot Asian Development - 16th Aug 18
Impulse Moves in the Currencies - 15th Aug 19
Best Merlin UK Theme Park Summer Holiday 2018 - Thorpe, Alton Towers, LegoLand or Chessington? - 15th Aug 18
The Essence of Writing an Essay that Must be Understood - 15th Aug 19
Is Solar Energy Rising From The Ashes Again? - 15th Aug 18
A Bullish Bond Argument That Hides in Plain Sight - 15th Aug 18
Jim Rogers on Gold, Silver, Bitcoin and Blockchain’s “Spectacular Future” - 15th Aug 19
A Depressed Economy And A Silver Boom - 15th Aug 19
Moving Averages Help You Define Market Trend – Here’s How - 14th Aug 18
It's Time for A New Economic Strategy in Turkey - 14th Aug 18
Gold Price to Plunge Below $1000 - Key Factors for Gold & Silver Investors - 14th Aug 18
Dow Stock Market Trend Forecast 2018 - Video - 13th Aug 18
Stock Market Downtrend to Continue? - 13th Aug 18
More Signs That the Stock Market Will Rally Until 2019 - 13th Aug 18
New Stock Market Correction Underway - 13th Aug 18
Talk Cold Turkey Economic Crisis - 13th Aug 18
Which UK Best Theme Park - Alton Towers vs Thorpe Park vs Lego Land vs Chessington World - 12th Aug 18
USD is Rising. What this Means for Currencies and Stocks - 12th Aug 18
Hardest US Housing Market Places to Live - Look Out Middle Class - 12th Aug 18
America’s Suburbs Are Making a Comeback - 12th Aug 18
Stock Market US Presidential Cycle, Seasonal Analysis and Economy - Video - 12th Aug 18

Market Oracle FREE Newsletter

Trading Any Market

Fed Can’t Twist Stock Market Sell Signals Away

Stock-Markets / Stock Markets 2011 Sep 09, 2011 - 08:38 AM GMT

By: Chris_Vermeulen

Stock-Markets

Best Financial Markets Analysis ArticleThe Wall Street Journal’s cover story on September 8 boldly proclaimed “Fed Prepares to Act”. The article hinted that ‘Operation Twist’ may be in the works (more on that below). Can you imagine the market’s reaction to a headline like that in the late 1990s when the Fed was looked at as some kind of miracle worker? The S&P 500 futures would have popped in the morning and inflation-protection assets would have had a strong open. On the morning of said Wall Street Journal article, the markets barely took notice of possible Fed action. This is clear evidence the markets no longer place central bankers on the miracle worker’s pedestal. It also shows fear of debt-induced deflationary outcomes is now outweighing the fear of inflation. These are significant and dangerous shifts for the market’s risk/reward profile. If this shift continues, stocks (SPY) and commodities (DBC) may experience further, and rapid declines in the next six months, if not much sooner. We added to our short positions (SH) on August 8.


From a technical perspective, every long-term sell signal we outlined in this September 5 video remains in place. If you have capital at risk in the markets, it is well worth your time to review these clear and observable signals that are similar to those that were in place in 2000 and early 2008. As noted in the excerpts from a recent Bloomberg article below, policymakers are using standard recession fighting tools in the present day; tools which are not appropriate for the long-term structural problems we face.

Pacific Investment Management Co.’s Mohamed El-Erian said the U.S. faces “serious” economic challenges, including lagging housing and labor markets, that will prove resistant to Federal Reserve stimulus efforts.

“You simply can’t overcome these impediments,” said El- Erian, chief executive and co-chief investment officer at Newport Beach, California-based Pimco, manager of the world’s biggest bond fund. “These are structural issues and require structural solutions.”

“The key issue any risk manager faces today is that too many parameters have become variables,” El-Erian said. “A cyclical mindset is not sufficient given the world we live in,” he said. “ You need to think structurally.”

If you are hoping the Fed will ride to the rescue on the ‘Operation Twist’ horse, you may be disappointed. In October 2010, we postulated the Fed’s second quantitative easing program (QE2) was designed to inflate asset prices, which is exactly what it did (temporarily). QE2 flooded the financial system with freshly printed U.S. dollars – it was pure money printing, which increased the money supply. ‘Operation Twist’, where the Fed sells short-maturity bonds and uses the proceeds to buy longer maturity bonds, will not increase the amount of dollars in the financial system, which is a stark contrast to QE2. ‘Operation Twist’ is like shuffling your bond portfolio on the deck of the economic Titanic; it points to a Fed that is running out of options, especially politically correct options, to stimulate the economy. We noted on August 19 that QE2 winners (silver (SLV), energy stocks (XLE), etc.) are not forecasting a miracle stick save form the Fed; nothing has changed in the price/volume action of those assets to change our stance.

As of the close on August 8, the S&P 500’s recent rally looks like a typical retracement rally, or bear market rally within a downtrend. Traders watch retracement levels which stood at 1,231 and 1,204 (see orange and purple text below).

A recent Bloomberg story should be a wake-up call for all of us to take the problems in Europe very seriously:

Credit-default swaps on Greek government debt surged to a record, signaling a 91 percent chance the nation will fail to meet debt commitments, after its economy shrank more than previously reported.

“It’s a combination of Greece continuing to disappoint and probably a growing realization among politicians that they’re throwing good money after bad,” said Gary Jenkins, head of fixed income at Evolution Securities Ltd. in London. “They’ve finally woken up to the fact that they’re not going to get this money back.”

A clear break of short-term retracement levels, shown below at 1,186 (point B below) and 1,177 (point C) on the S&P 500, would be another short-term red flag for asset prices.

We will remain defensive/bearish until we see improvement in the fundamentals (mainly Europe) and the technicals. Keeping an open mind about a possible change in the market’s tone is always a good idea.

Ciovacco Capital Management

    Copyright (C) 2011 Ciovacco Capital Management, LLC All Rights Reserved.

    Chris Ciovacco is the Chief Investment Officer for Ciovacco Capital Management, LLC. More on the web at www.ciovaccocapital.com

    Ciovacco Capital Management, LLC is an independent money management firm based in Atlanta, Georgia. As a registered investment advisor, CCM helps individual investors, large & small; achieve improved investment results via independent research and globally diversified investment portfolios. Since we are a fee-based firm, our only objective is to help you protect and grow your assets. Our long-term, theme-oriented, buy-and-hold approach allows for portfolio rebalancing from time to time to adjust to new opportunities or changing market conditions. When looking at money managers in Atlanta, take a hard look at CCM.

    All material presented herein is believed to be reliable but we cannot attest to its accuracy. Investment recommendations may change and readers are urged to check with their investment counselors and tax advisors before making any investment decisions. Opinions expressed in these reports may change without prior notice. This memorandum is based on information available to the public. No representation is made that it is accurate or complete. This memorandum is not an offer to buy or sell or a solicitation of an offer to buy or sell the securities mentioned. The investments discussed or recommended in this report may be unsuitable for investors depending on their specific investment objectives and financial position. Past performance is not necessarily a guide to future performance. The price or value of the investments to which this report relates, either directly or indirectly, may fall or rise against the interest of investors. All prices and yields contained in this report are subject to change without notice. This information is based on hypothetical assumptions and is intended for illustrative purposes only. THERE ARE NO WARRANTIES, EXPRESSED OR IMPLIED, AS TO ACCURACY, COMPLETENESS, OR RESULTS OBTAINED FROM ANY INFORMATION CONTAINED IN THIS ARTICLE. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS.

    Chris Ciovacco Archive

© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules