Best of the Week
Most Popular
1. US Housing Market Real Estate Crash The Next Shoe To Drop – Part II - Chris_Vermeulen
2.The Coronavirus Greatest Economic Depression in History? - Nadeem_Walayat
3.US Real Estate Housing Market Crash Is The Next Shoe To Drop - Chris_Vermeulen
4.Coronavirus Stock Market Trend Implications and AI Mega-trend Stocks Buying Levels - Nadeem_Walayat
5. Are Coronavirus Death Statistics Exaggerated? Worse than Seasonal Flu or Not?- Nadeem_Walayat
6.Coronavirus Stock Market Trend Implications, Global Recession and AI Stocks Buying Levels - Nadeem_Walayat
7.US Fourth Turning Accelerating Towards Debt Climax - James_Quinn
8.Dow Stock Market Trend Analysis and Forecast - Nadeem_Walayat
9.Britain's FAKE Coronavirus Death Statistics Exposed - Nadeem_Walayat
10.Commodity Markets Crash Catastrophe Charts - Rambus_Chartology
Last 7 days
Could Gold Price Reach $7,000 by 2030? - 6th Aug 20
Bananas for All! Keep Dancing… FOMC - 6th Aug 20
How to Do Bets During This Time - 6th Aug 20
How to develop your stock trading strategy - 6th Aug 20
Stock Investors What to do if Trump Bans TikTok - 5th Aug 20
Gold Trifecta of Key Signals for Gold Mining Stocks - 5th Aug 20
ARE YOU LOVING YOUR SERVITUDE? - 5th Aug 20
Stock Market Uptrend Continues? - 4th Aug 20
The Dimensions of Covid-19: The Hong Kong Flu Redux - 4th Aug 20
High Yield Junk Bonds Are Hot Again -- Despite Warning Signs - 4th Aug 20
Gold Stocks Autumn Rally - 4th Aug 20
“Government Sachs” Is Worried About the Federal Reserve Note - 4th Aug 20
Gold Miners Still Pushing That Cart of Rocks Up Hill - 4th Aug 20
UK Government to Cancel Christmas - Crazy Covid Eid 2020! - 4th Aug 20
Covid-19 Exposes NHS Institutional Racism Against Black and Asian Staff and Patients - 4th Aug 20
How Sony Is Fueling the Computer Vision Boom - 3rd Aug 20
Computer Gaming System Rig Top Tips For 6 Years Future Proofing Build Spec - 3rd Aug 20
Cornwwall Bude Caravan Park Holidays 2020 - Look Inside Holiday Resort Caravan - 3rd Aug 20
UK Caravan Park Holidays 2020 Review - Hoseasons Cayton Bay North East England - 3rd Aug 20
Best Travel Bags for 2020 Summer Holidays , Back Sling packs, water proof, money belt and tactical - 3rd Aug 20
Precious Metals Warn Of Increased Volatility Ahead - 2nd Aug 20
The Key USDX Sign for Gold and Silver - 2nd Aug 20
Corona Crisis Will Have Lasting Impact on Gold Market - 2nd Aug 20
Gold & Silver: Two Pictures - 1st Aug 20
The Bullish Case for Stocks Isn't Over Yet - 1st Aug 20
Is Gold Price Action Warning Of Imminent Monetary Collapse - Part 2? - 1st Aug 20
Will America Accept the World's Worst Pandemic Response Government - 1st Aug 20
Stock Market Technical Patterns, Future Expectations and More – Part II - 1st Aug 20
Trump White House Accelerating Toward a US Dollar Crisis - 31st Jul 20
Why US Commercial Real Estate is Set to Get Slammed - 31st Jul 20
Gold Price Blows Through Upside Resistance - The Chase Is On - 31st Jul 20
Is Crude Oil Price Setting Up for a Waterfall Decline? - 31st Jul 20
Stock Market Technical Patterns, Future Expectations and More - 30th Jul 20
Why Big Money Is Already Pouring Into Edge Computing Tech Stocks - 30th Jul 20
Economic and Geopolitical Worries Fuel Gold’s Rally - 30th Jul 20
How to Finance an Investment Property - 30th Jul 20
I Hate Banks - Including Goldman Sachs - 29th Jul 20
NASDAQ Stock Market Double Top & Price Channels Suggest Pending Price Correction - 29th Jul 20
Silver Price Surge Leaves Naysayers in the Dust - 29th Jul 20
UK Supermarket Covid-19 Shop - Few Masks, Lack of Social Distancing (Tesco) - 29th Jul 20
Budgie Clipped Wings, How Long Before it Can Fly Again? - 29th Jul 20
How To Take Advantage Of Tesla's 400% Stock Surge - 29th Jul 20
Gold Makes Record High and Targets $6,000 in New Bull Cycle - 28th Jul 20
Gold Strong Signal For A Secular Bull Market - 28th Jul 20
Anatomy of a Gold and Silver Precious Metals Bull Market - 28th Jul 20
Shopify Is Seizing an $80 Billion Pot of Gold - 28th Jul 20
Stock Market Minor Correction Underway - 28th Jul 20
Why College Is Never Coming Back - 27th Jul 20
Stocks Disconnect from Economy, Gold Responds - 27th Jul 20
Silver Begins Big Upside Rally Attempt - 27th Jul 20
The Gold and Silver Markets Have Changed… What About You? - 27th Jul 20
Google, Apple And Amazon Are Leading A $30 Trillion Assault On Wall Street - 27th Jul 20
This Stock Market Indicator Reaches "Lowest Level in Nearly 20 Years" - 26th Jul 20
New Wave of Economic Stimulus Lifts Gold Price - 26th Jul 20
Stock Market Slow Grind Higher Above the Early June Stock Highs - 26th Jul 20
How High Will Silver Go? - 25th Jul 20
If You Own Gold, Look Out Below - 25th Jul 20
Crude Oil and Energy Sets Up Near Major Resistance – Breakdown Pending - 25th Jul 20
FREE Access to Premium Market Forecasts by Elliott Wave International - 25th Jul 20
The Promise of Silver as August Approaches: Accumulation and Conversation - 25th Jul 20
The Silver Bull Gateway is at Hand - 24th Jul 20
The Prospects of S&P 500 Above the Early June Highs - 24th Jul 20
How Silver Could Surpass Its All-Time High - 24th Jul 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

Feds Interest Rate Hikes Stance Equates to Nonsense and Masses are Turning Bullish on Stocks

Stock-Markets / Stock Markets 2016 Dec 24, 2016 - 09:56 AM GMT

By: Sol_Palha

Stock-Markets

"Beware of all enterprises that require a new set of clothes." ~ Henry David Thoreau

Remember over a year ago when they first raised hikes-they huffed and puffed warning everyone that they would raise rates several times in 2016 and viola nothing happened until now. Now they are repeating the same thing all over again. To illustrate how bad this economy take into consideration that the Fed has raised rates only twice in the last decade; the economy was a lot stronger in 2006 and 2007 than it is today. Yellen's statement below illustrates how the Fed is positioning itself so that it can pull another "oops we were wrong once again" moment.


"All the (Federal Open Market Committee) participants recognize that there is considerable uncertainty about how economic policies may change and what effect they may have on the economy," Yellen said

Has anything changed since the last hike; is the economy stronger? The only thing that is getting stronger is the illusion that this economy is on the mend. If the economy was improving, then a rising rate environment could be seen through a bullish lens. In this instance, this economic recovery is a joke; it is all an illusion that is funded by debt. If the supply of hot money is cut, the markets will tank. The real estate sector is not stable yet, and most people already can't afford a house, so raising rates is a recipe for disaster. Our take is that the Fed has raised rates to give them more room to manoeuvre while making it appear that they are loath to embrace negative rates. The Fed has to play a delicate balancing game; the US dollar has to look attractive to the world, as that is what gives the Fed the power to create unlimited money. The US dollar is the World's reserve currency. If it were not, then the US would have followed Greece's path long ago. It is our ability to rob the world by creating money out of thin air at other nation's expense that gives the US capacity to hold onto the top dog position precariously. It is precarious because it is just a matter of time before China displaces the US. On a purchasing power parity basis, China has already replaced the US as the World's largest economy. One day the world will realise that the emperor is naked, fat, old and ugly as sin. However, as there is still some time before this comes into play, we are not going to address this issue.

We believe that the Fed will have no option but to eventually embrace negative rates unless they are looking to trigger a crash. The Fed is famous for artificially creating every boom and bust cycle since the US went off the Gold standard. While it might appear that we are in a bubble like phase as far as the stock market is concerned, one needs to remember that the masses have not benefitted much from the current rally. History illustrates that the Fed usually pops the bubble after the masses have fully embraced the market. Additionally, the masses are not euphoric; however, they are turning more bullish, which suggests as we alluded in this article Stock Market Bulls-Stock Market fools-Market Crash next or is this just an Illusion, that it would not surprise us if the markets experienced a decent correction next year. In the interim, we think the Fed's current move is just a trick to make it appear to the world that our economy is healthy. Now the Fed can lower rates twice before they move to zero, but it will force the rest of the world to lower their rates even more; effectively still making the US dollar the most attractive currency.

The bond market which many have given up for dead are looking for an excuse to rally sharply. We will look at this in more detail in a follow-up article. However, if you look at the long-term chart below, it is easy to spot that bonds have not crashed. They were pushed to extreme levels as individuals continued to embrace bonds for years despite the miserable returns they offered due to the safety factor. The masses, in general, were sceptical of this bull market and bought the hype that it was going to fall apart tomorrow for the past nine years. After Trump won money started moving out of bonds and into the market. What we have is a simple rotation; money is moving from one market into another. Now bonds are extremely oversold, and the markets are trading close to the extremely overbought ranges. When the markets start to pullback money will flow into bonds pushing rates lower. At that point, one will be able to tell if the rally in bonds is just a dead cats bounce or if the bull is ready to run again.

30-Year US Treasury Weekly Chart

This is a weekly chart containing five years worth of data (each bar represents one week's worth of data); it is easy to spot that Bond market is extremely oversold. Trump's win has created a lot of enthusiasm, and a large number of individuals who were sitting on the sidelines moved out of bonds and into the market. As the move has been incredibly powerful, it is likely that bonds could experience a counter move that is equally strong.

For the first in time in roughly 24 months, bullish sentiment has soared to the 50% mark twice over a period of 6 weeks. Up until now, the masses were constantly negative, even though the markets continued to trend higher. Things are different right now; while the sentiment is not in the Euphoric, the percentage change is quite significant and signifies that some bloodletting is in order.  Bond are attempting to find support in the 148.00 ranges; a weekly close below this level should result in a test of the 142.00-144.00 ranges, with a possible overshoot to the 140 ranges. The downside risk for bonds now is limited.

The markets have been resilient to sharp corrections for quite some time; a correction would be healthy for this market. It would scare the masses and sentiment would turn negative again, setting the bedrock for the markets to rally higher.

Conclusion

The illusion that the economy is doing well is supported because of the vibrant stock market. The stock market appears healthy because hot money is driving it. If the supply of hot money is cut, the markets tank and the illusion that all is well will come to screeching halt. If this economy were healthy, the Fed would have raised interest rates several times over the past ten years and not just twice. Moreover, Yellen's statement that we posted at the onset of this article clearly indicates she is hedging her bets.

In the interim bullish sentiment has surged significantly on a percentage basis, and Bonds are trading in the extremely oversold ranges. The ingredients are in place for a decent correction. Don't confuse the subsequent correction for a crash; the naysayers will do their best to have you believe that the world is going to end. We base our analysis on our Mass Sentiment indicators and the Trend indicator. When the trend turns negative, we will stop viewing substantial pullbacks as buying opportunities.

"He that's secure is not safe." ~ Benjamin Franklin

by Sol Palha

www.tacticalinvestor.com

Sol Palha is a market analyst and educator who uses Mass Psychology, Technical Analysis and Esoteric Cycles to keep you on the right side of the market. He and his partners are on the web at www.tacticalinvestor.com.

© 2016 Copyright Sol Palha- All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 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