[Chart courtesy of MarketWatch.com]
- Moving the markets
The Dow was leading today’s modest advance after having been the laggard yesterday. Some positive earnings from financial powerhouses Goldman Sachs and BofA gave the assist, while uncertainty over the partial government shut down was on traders’ minds but did not affect market direction.
You may be wondering what the real catalyst was that generated and propelled the post-Christmas rally other than President Trump declaring to “buy the dip.” Despite weak economic data points and the Smart Money exiting stocks, we’ve seen sharp swings higher helping the buy-and-hold crowd to reduce the Q4 2018 losses.
ZH shed some light on this phenomenon via their comment “it’s not the economy, it’s the central banks, stupid,” and added this for clarification:
Q4 2018 saw global stock markets finally wake up to the fact that the world’s central banks were withdrawing liquidity and played catch-down to an ugly tightening reality. December’s contagion to American stocks was the final straw for the world’s elites however and after the Mnuchin Massacre, it appears the Plunge Protection was ordered back into battle and as the chart below shows – central bank balance sheets suddenly started to grow – aggressively so… and that is what is dragging stocks higher, squeezing shorts at an unprecedented pace, and economically irrationally levitating P/Es despite a wall of uncertainty ahead.
This chart makes the above abundantly clear. As you can see in the circle on the right, Central Banks’ (CBs) balance sheets suddenly grew sharply (asset purchases) pulling global stocks out of the doldrums. The exact opposite happened when balance sheets were normalized, demonstrated by the drop starting in late September.
Just like in 2018, 2017, and 2016, the start of the year has prompted a resurgence in the size of global central bank balance sheets… and just like in 2018, 2017, and 2016, global stocks (with US being the most liquid attractor of that flow) are soaring…
And just remember, The ECB is supposed to be tapering, The Fed is still on ‘autopilot’ for now, and The BoJ is being forced to taper its buying size…
And finalizing with:
So, the simple lesson once again is – watch what they do, not what they say!!
While this is only one man’s opinion, it sure explains the irrational exuberance created in the marketplace out of nowhere and with lightening speed.
For us trend trackers the only question is this one: Manipulation or not, will this rebound have enough staying power to push our Trend Tracking Indexes (TTIs) back into “Buy” mode?
As always, no one has the answer, so we’ll to wait for this event to happen. As of today, our Domestic TTI is -4.32% away from a new “Buy” signal.