By: Jeff Cooper
The stated Fed goal at its June 15th meeting (the market low interestingly) was to tighten financial conditions by raising Fed Funds by 75 bps and sending a message about being tough on inflation.
Since the close on June 14th, 2 yr, 10 yr, and 30-year yields are down 36, 70, and 41 bps respectively.
The NAZ is up 10%.
How’s that correlation working for you?
The mind scrambler is why are we in a recession after two years of trillions spewing into the economy?
Maybe that was lipstick on a stuck pig.
Be that as it may, clearly financial conditions have eased meaningfully, which is probably just going to make the inflation problem worse.
Clearly, the Street does not buy Powell’s Volker look-a-like contest.
To wit, the market exploded on Wednesday as the Fed raised rates by 75 bps…the 4th hike this year.
I guess it’s gone from 3 Times & A Stumble to 5 Times & A Stumble now– you know, inflation.
Remember last year when Powell said, “I’m not even thinking about thinking about raising rates.”
Perhaps he’d have a chance at credibility now if he said, “I’m not even thinking about thinking about not ratcheting rates as high as they need to be for as long as they need to be to whip inflation.”
Truth be told, this inflation has a lot more drivers than rates alone can battle.
Interest rates are a sledgehammer when brain surgery is needed.
The dirty not so little secret is that rates really can’t go very high….because of the debt service.
So basically we’re getting to the point where the Fed Jawbone has become the Fed Lip Service.
Truth be told squared…it’s hard to raise rates when you’ve got to sell $9Trillion worth of bonds.
That’s not so hard to figure out. Is it?
The Fed is a prisoner of its own device.
The market smells a cooked Christmas goose when it sees one.
By that I mean. It’s all about positioning.
Hedgies have been taken to the cleaners this year. The good ones are down 25% on average.
They can’t go into the fall when the redemption gates open for their clientele.
So whaddya do? Throw a Hail Mary and squeeze ‘em to the moon Alice.
What’s to lose?
It’s OPM (OPIUM) taking offers indiscriminately or key in the door come Christmas.
Pick your poison.
My take? They are summer fluffers for the true bears with staying power.
From my perch, what’s more important than staying power is TIMING.
As we wrote in Wednesday morning’s Hit & Run Report:
“As tweeted yesterday (on the Hit & Run Private Twitter Feed), the QQQ turned down its 3 Day Chart (on Tuesday)
Each time they have done so since their mid-June low has defined a low.
These prior instances are June 30 and July 13, both of which traced out higher lows from the mid-June low.
If the same behavior plays out from yesterday’s turndown, it will leave a 3rd higher low.
As W D Gann wrote, fast moves often come from 3rd higher lows.
As well yesterday’s turndown occurred on a backtest of the QQQ 50 day line.
This morning’s upthrust on the futures suggest the impulsive move I was looking for yesterday above 3950 (SPX) is playing out.
If so, THE SPX SHOULD CHALLENGE 4020. If that attack is successful, the SPX Monthly Swing Chart will turn up in early August on the way to 4100 +”
The SPX closed at 4023 up 102 points. Boom.
In sum, stocks have followed through with authority since our July 18 report: Stocks Trigger Multi-Week and Multi-Month Buy Signals.
Monday will be August 1. Unless the wheels come off, the SPX/QQQ should easily satisfy turnups of the Monthly Swing Charts for the first time since March. That turnup defined a major high.
It will be important to observe the behavior when these monthlies turn up.
Interestingly, as depicted on the Square of 9 Wheel below, QQQ has a Time/Price square-out at 310 and July 27th.
In other words, 310 vectors/vibrates off July 27th.
It’s always + or – a day so it will be important to see how the market plays out if QQQ should strike 310 in coming hours days.
As a daily QQQ reveals, 310 also ties to the top rail of a trend channel.
Should the Q’s blow through this “square-out” in tandem with breakage through the trend channel it opens the door for higher prices in keeping with the Rule of Multiples (two technical in tandem).