All the major US indices are now well below their long term uptrend levels on big daily volumes. While keeping in mind that this week is Options expiry for the month, where institutional gamplaying and manipulation is the order of the day, we could see more selling into strength as the markets look like they could be at the start of a downtrend.
It is going to be interesting to see if the Fed makes any move to stabilize the markets, as they will be fully aware that a major crash would almost certainly happen if the individual automated market algorithms are triggered one after the other, should those particular levels be reached. With most of the smart money out of the market weeks ago, there has been a slight move to safety in the way of Gold and Silver, with even the miners waking up. But a major crash would probably drag them down with it, at least initially.
With the Fed announcement a couple weeks ago regarding the need to start to raise interest rates earlier then expected, in the present environment, TLT (the 10+ treasury bond ETF) does not provide any information with regard to a market downturn or crash, due to the sharp rise in bond yields. However, DJT (the Dow transportation index) is still holding up well, but if this index were to drop sharply, it would not be good news.
Hopefully the markets will rally for a period and hopefully settle into a more stable sideways movement over the next few weeks, while always keeping in mind that any rally could easily develop into a classic bear trap.
As an update on a post I did way back in December 2020, I have continued to monitor volcanic activity since then, and it appears that activity is increasing all over the world. Hopefully it will not continue to increase.
Will the plunge protection team come to the rescue again !
I was wondering that. Usually sometime after 3pm UK time. At times last year it looked like PPT Fridays. It was looking so predictable at times. Maybe they should open a chain of restaurants.
The futures are not looking good at the moment, so if there is a big sell off from the open, I will start to look for signs of a reverse on increasing trading volume on the 5 or 15 minute chart of the US 500 to decide weather to have a day trade on it. Then again they don't want to have to do it, so maybe they will just try to use rhetoric, although that is wearing a bit thin. I'm not sure that the Fed want to let it run over the weekend as things are.
But things are getting so tight for them. It reminds me of Jason and the Argonauts passing through the Clashing Rocks, but only much more precarious.
Overall, the market looks very reminiscent of the start of the dot com crash, with the techs and small caps selling off aggressively before the rest of the market. But that does not necessarily mean that history will repeat itself. Hopefully.
Looks like may have been some PPT action around 5.30 UK time yesterday, although it was not obvious from the volume on the S&P 500. But the markets rallied strongly to erode all the loses on the day, but tech stocks sold off again overnight during the Asian session. The Fed meeting starts today, the body language should be fascinating when Powell delivers his speech.
Interesting interview with George Gammon, with his view on the current financial situation in the US (a few days before the current sell off). His comment with regard to how interest rate rises could seriously affect the repo market is something to keep in mind. www.youtube.com/watch?v=4Ykh1r1aSFY
For five days during the last week in January, the S&P 500 toyed with the critical 4300 level on very high volume. At the moment it looks like support, as the long wick candles for those days showed that the bulls bought heavily as the price dropped. However, at the end of the trading day on Friday 28th, just when it looked like the bears were going to gain the upper hand to end the week at a critically dangerous level for the markets, as no one wanted to hold positions over the weekend, massive buying took place that had the hallmarks of Fed interference. So much for reducing asset purchasing.
The result of this action was to send a signal to the market that despite tapering and upcoming interest rate rises, the Fed will never let the market drop without a fight. So, although it is natural to see some kind of a rebound in the market after the large sell off earlier in the month, the Fed stabilization may well see the market move higher then is natural, but I will be surprised to see the US markets reach new highs in the current environment. I am also not sure that the next time the 4300 level is tested again, the Fed will have the power to support it, particularly when the majority start to realize that they cannot control inflation with meagre interest rate rises.
The recent buying of Bitcoin seems to be related to this injection of S&P support, as it has also alleviated the selling pressure on crypto generally. I can also see Bitcoin continue to rise to around the 51k level after a little pull back to 40k. From there, I would not be surprised to see the whole bullish run to be nothing more then a bull trap, as general market confidence could rapidly start to weaken. It would not surprise me to see the crypto to come under aggressive selling pressure, bringing it down to around the 29k level, or even lower after some consolidation. I hope I am wrong. If of course Bitcoin is perceived as a safe haven in falling markets, this will probably not happen.
Talking of safe havens, I would just like to point out that on the weekly and monthly charts of the traditional safe haven of Gold, the multi month long wedge patterns are nearing their apexes. More often then not, when an asset gets nearer and nearer the apex of these types of patterns, the more explosive the move is of that asset's price is to either the upside or downside. From my own point of view, the Gold pattern looks more bullish then bearish, and so the more likely direction would be to the upside , although of course nothing is guaranteed. The pattern for Silver looks similar to that of Gold. Therefore, the movement of these metals over the next few weeks might be worth keeping an eye on.
How does one know whether the Fed are indeed the plunge protection team and are buying stocks?
Is there published evidence of their trades?
As far as I know I don't think there is any formal evidence that the Fed are solely the PPT, and they probably are not. However, I would see it being reasonable to assume that the Fed would have a very strong influence, or even control over the Exchange Stabilization Fund. As far as I know the ESF only has to make a financial statement to the general public on the last day of each month, but no details of trading is included (https://home.treasury.gov/system/files/206/ESF-JAN21-FS-Trunc-Notes.pdf).
Obviously I could easily be wrong about this, but reading between the lines.....
Here's an interesting article from seeking alpha published in 2018. Presumably since then, and in light of the vast amount of QE since the covid crash, powers to interfere in markets applied during the Trump administration (despite Mnuchin), will have increased. There is too much to risk.
What action, if any, are the Fed going to take at it's next meeting in mid-March. The yield curve is flattening dramatically at the moment, and normally central banks would have already raised interest rates several times to combat the flattening, and probably even more so with the additional rising inflation, as historically when the yield curve goes negative, a year or two down the line we have a recession. At such times in the past, central banks had the ability to then start to cut rates to stimulate the economy - the Fed have not even started to raise rates yet, so they have no room to move. Will they let inflation get it's way, or will they sacrifice the market. The market has priced in a 0.5% hike, my guess is that the Fed will only hike by 0.25%, unless something else materializes in the meantime. As far as Putin's timing is concerned, he is spot on, he has vast reserves of Oil and Gold, and he knows the Central banks are in a very tight spot.