“You’re telling all those lies about the good things that we can have if we close our eyes.” – Think For Yourself, The Beatles
Apparently the market doesn’t believe in the Inflation Genie, but it clearly believes in Tooth Fairies with crystal balls.
The Fed is able to see clear into 2024. That’s when they’ll raise interest rates. Maybe.
Ain’t it grand to have a crystal ball?
The thing is, one of the reasons the Fed was created on Christmas Eve in 1913 was to prevent panics like 1907.
How’s that mandate been working out for the last 107 years?
While the Fed is not concerned about inflation, 3M is seeing inflation on three fronts: higher materials, labor and logistics.
So what does Powell mean when he says “The Fed is not going to be preemptive, we’re going to rely on facts?”
The Fed is all in.
Jump right in — the water's fine. Don’t worry about those sharks; we’re going to jump them.
And that’s exactly what the Algomatics and market participants did as if on cue on Wednesday.
A 10 minute SPX shows a gap down in front of the Fed followed by a micro Rule of 4 Breakout (breakage above triple tops), which started FOMC Cha Cha Cha Day.
The index spiked through Wednesday’s open gap, triggering a Jump the Creek buy signal for “Cha # 1.”
Then the SPX pulled back into the gap region for “Cha # 2,” followed by the 3rd Cha to all-time new highs.
In the process, the SPX carved out an outside up day.
This morning pre-market, we’re getting a pullback to the short-term support near 3855.
Hit & Run members capitalized off the reversal with audible long plays off the Hit & Run Private Twitter Feed.
Taking positions in VUZI, MGNI, NARI and RIOT prior to the market exploding.
Breakage back below Wednesday’s outside up day will trigger a Reversal of a Reversal sell signal (a Keyser Soze) on the dailies.
The difficulty for traders is reconciling the runaway moves in the SPX and IWM with the broken trend in the growth glamours that led us here… the NAZ.
Wall Street's favorite game is extrapolation of recent moves to the hereafter.
Yesterday Street soothsayers were ratcheting up targets with the markets at overbought extremes.
On a valuation basis, the PE ratio on the SPX is 43.22… about the same as at the 1929 peak.
The reason for such lofty valuations is the Reopening… turbo-charged by massive stimulus.
The conundrum for investors is whether Mr. Market has already discounted normalization.
If the Fed can print prosperity and trees grow to the sky, then the crescendo will be more stupefying than what we’ve seen in the last year.
More upside fireworks are possible this year since the structure of this advance is at a larger degree than that of the Roaring Twenties top.
In other words, when this bull market culminates, it will complete a structure off the 1932 low, the 1974 low, the 1982 low and the 2009 low.
That said, every correction since the March 2020 low has been sharp and short. We have not gotten a deep correction that plays out over time.
There are two scenarios for brave new highs in stocks.
1) If stocks are going to extend, cycles suggest a deeper pullback that plays out over months versus weeks to wring out the excesses prior to higher.
2) The SPX breaks out over the key 3950-4000 region and jumps the sharp.
