Authored by Sven Henrich via NorthmanTrader.com,
Please don’t anybody act surprised by today’s rally. We were oversold, we hit key technical pivots and a bounce was due, but the trigger was well advertised in advance.
13 Fed speakers this week and I outlined my expectations on that front this weekend in Collapse:
“Expect to get flooded with Fed speeches next week. Let the great Fed jawboning begin anew”.
And they surely did not disappoint starting off with Bullard yesterday calling for rate cuts soon, but the stock market fire really got fueled by the usual suspect: Jay Powell the latest Fed chair to be the harbinger of the greatest rallies:
Oh yes, the Fed is IT, still the biggest price discovery game in town.
It’s always the same clown circus, markets get in trouble and the Fed jumps to the rescue, you all know this, especially if you’ve seen my chart:
It seems incredulous to think that the Fed would be so lucky in their timing to always show up at critical market pivot points, just at the edge of a breakdown, but there it is. Always at a key trend line, so perhaps the Fed is more technically attuned than people give them credit for.
Oh I kid the Fed, fact is markets reached critical support yesterday, the immediate bounce yesterday triggered, in my view, by an important gap fill on $DJIA, its January gap, the same chart we’ve been tracking for weeks:
$DJIA just filled its January 2019 gap.
In other words: The past 4 months of price gains were all given back. pic.twitter.com/ec20PxlKVB— Sven Henrich (@NorthmanTrader) June 3, 2019
And of course we had Mella’s bear flag target being met:
So yes, a bounce made perfect sense, but of course Powell’s timing was excellent to really kick things into gear. So thank you.
But on policy it’s been quite the journey for Jay Powell our brave Fed avenger market super hero:
The incredible adventures of Jay Powell, Fed Chair:
October: Balance sheet on autopilot, rate hikes in 2019.
December: Holy shit balls
January: Flexible on balance sheet & patient
March: End balance sheet rolloff & no rate hikes till 2020
June: We are ready to act (cut rates).— Sven Henrich (@NorthmanTrader) June 4, 2019
The journey of course reveals much about the traveler. Totally beholden to markets and reactive to economic and market developments, the Fed always 10 steps behind reality.
No wonder Jay Powell wants to get rid of the dot plot, it has laid bare what an absolute failure the Fed is at predicting anything, the dot plot has become a running joke over the years. Always overly optimistic, never on target always subject to revision down.
Just in March the Fed reduced its rate hike outlook to 1 rate hike in 2020, now the market is pricing in 3 rate CUTS for 2019. Just pitiful.
But what’s more pitiful is the reality that Fed officials always need to step in and rescue markets from any sort of reality. Always preventing the drunk kid from facing the consequences of its irresponsible actions. Don’t worry, central bank daddy will always step in and ‘put’ an end to any consequences. See what I did there? 😉 Yes the Fed put is alive and well and well recognized:
— Sven Henrich (@NorthmanTrader) June 4, 2019
Now investors are cheering on the prospect of rate cuts, but be forewarned the game may have changed: Be careful what you wish for as rate cuts at the end of a cycle are an admission that the cycle has turned.
That is, after all, what the bond market has been advertising:
For now the Fed appears to succeed again, jawboning markets higher.
But please don’t act surprised:
If you don’t think 13 Fed speakers in one week don’t find a way to rally this market you haven’t been paying attention the last 10 years.
— Sven Henrich (@NorthmanTrader) June 4, 2019
The Fed, for now, remains IT. Watch out for signs that the cycle is overpowering the Fed’s jawboning efforts. The circus act is getting old.
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