The markets were more or less meandering yesterday, when the Fed threw a long unexpected pass to Wall Street, which saved the day.
The assist came in form of an announcement (see arrow in chart) that they would inject some $1.1 trillion in an effort to support the economy.
Wall Street nodded approvingly, and the rally was on. The decision to leave interest rates unchanged was probably the worst kept secret, but the additional spending was a surprise. Here’s how the money will be doled out:
1. $300 billion will be spent on the purchase of Treasury securities,
2. $750 billion will be used to buy mortgage backed securities from Fannie and Freddie
3. $100 billion in debt purchases from Fannie and Freddie
There you have it. We are now in the stage of printing money to buy our own debt. This only indicates to me that the Fed is very worried about the economy and the housing market in general. From what I’ve read, this goes against what Fed Chairman Bernanke said last weekend that things should be improving later on this year. It again proves the old adage when it comes to official announcements that the key is to watch what they do and not what they say.
To view these actions as a positive for the stock market is simply looking at things on a very short term basis. While this current market rebound is great for traders, it can be a death trap for investors.
Until proven otherwise, I still see this present up move as nothing more than a bear market rally.
Comments 11
But Ulli, what if the indexes move up though their 200 day M.A., or your TTI?
Isn't it then time to buy and aren't we then setting ourselves up for a bigger fall?
It looks like, at this rate, the TTI will be broken through very soon, and the 200 day MA on the S&P; 500 in a month or so…….
Chuck,
As always, when setting up new positions, it’s imperative that you work with a sell stop discipline. You only are setting yourself up for a big fall, if you buy and hold.
Best,
Ulli…
Thanks Ulli,
I seemed to have forgotten that!
Can you tell us more about your TTI? I guess it is proprietery or something??? But isn't it like a 100 or 200 day moving average? Does it track the S&P; 500 or is it some type of composite, like the IBD Mutual Fund Index?
The FED will keep on trying to minipulate the market but most people dont believe a thing that comes out of Washington anymore. The majority of our representatives are nothing more than a bunch of LIARS. I feel they are some of the most dishonest scum bags our country has ever produced. If they would let the markets run unmolested maybe someday we could see some better days. Snoobers
Chuck,
The TTI runs on a 39-week simple moving average. I designed it in the late 80s, but its composition is proprietary.
Ulli…
Ulli,
In response to the TTI question that someone ask about. I remember back in the late 70s and into the early 2000s when I was still subscribed to another popular “Market Letter Service” that it had a similar thing where buy and sells were based on a 39 week SMA of a 5 mutual fund composite that covered several areas of the market for diversification. Then when the 5 mutual fund composite went above or below it’s 39 week SMA and was confirmed in the later years by the Wilshire 5000 crossing it’s 39 week SMA a buy or sell signal was generated. That method worked fine except in sideways markets in which most moving average type methods get whipsawed badly.
Ulli,
Thanks again for info, and for all you do. Should I ever come across anyone who needs professional management, you would surely be the only person I would refer them to.
Why no Facebook?
Chuck
Anon,
There have been various services using composites and 39-week M/As.
I’ve desinged my own back in the 80s and used it ever since. Keep in mind that there is no perfect investment approach and dealing with whipsaws during sideways markets is just such a shortcoming. However, it sure beats them mindless buy and hold by a wide margin when incuding bear markets in your calculations.
Ulli…
The bullish sentiment, in this market, has been very high, even when the market has been bearish. Many people believed the market was oversold very much. I think they were looking for any signs of "good news" to buy again. When Bernanke went on "60 Minutes" and said that he was not going to let any big bank fail, if I were a CEO of a big bank, I would have been dancing in the street; it was carte blanc. He also said that the Fed was going to do "stress tests" on banks to see how much more money they needed and give it to them; more dancing in the street. Big banks should hold their Board meetings in St. Lucia or the most exotic places they can find. Wow! This is going to be a fun ride.
Then, he threw traders, not investors, great news. He's going to print more money to pay off our huge national debt; the heck with inflation, which he said he can control — right??? And the heck with the countries who have been buying our debt. Are they going to want to buy it anymore? Duh!!! Or is someone in China going to get "Fed" up with this and take military action instead of economic action. Wars have been fought over money. Our own Revolutionary War was started with the Boston Tea Party, when we said enough is enough. We're not going to let an Empire take our money any longer.
Then, today, I call Bernanke, Ben, since we're on a first name basis tried to placate the regional bankers, who haven't taken the TARP money but who are paying for it with all of the new regulations on them now, and the payments they have to make to the Fed. Well, today was the first day, in over a week that the Dow, the S&P; and the Russell were down. I think investors are starting to look at what Washington is doing and what is going to happen, rather than what Washington is saying, as one commentor, in this blog wrote.
Also, this "rally" has not been confirmed by volume. The volume up has been about half of what the volume was going down. Raising any red flags? Especially, when Ben keeps saying that our economy is so fragile — that I do believe. None of the numbers, except the sale of existing homes have been better than expected. Everything else, which I can remember, that has been released lately, has been way down from the past or just plain way down. People lie, or withhold the truth, like Ben did when he knew about the AIG bonuses, but didn't tell the president, but raw numbers do not; not unemployment, not new housing starts, not GDP… I think investors, not traders, necessarily, should be very cautious about getting back in the stock market, right now. As options traders say, when you buy time value, it's like buying air in a balloon, and the air always comes out of a balloon. I'm just waiting for the next rabbit to be pulled out of the hat, too.
Snoobers give us a break!!! The gov didnt do any of this. It was yur bunkies on Wall Street aided and abetted by their lobbyst coharts inducing congressional lackies to change regs.
When Paulsen said the world was going to end and the financial mkts wud freeze and collapse, was he talking as a big bad ""lousy"" gov official or a Friend of Wall Street whence he came.
It was the street begging for gov help with boat loads full of money. All yu gov/dem haters have a short, warped memory.
Oh yeah right the boggey man did it. Aint no lowly hand out congressional hack going to pull the pin on the world economy and The Street. That is as almost as laughable as those lowely sub prime income types bringing down The Street. I think Karl & Trotsky and the boys wud be LOL to think all they needed to do to bring down Das Kap$tal is borrow some money from Wall Street
The person who left the comment as “Anonymous,” who started his comment with, “Snoobbers give us a break!!!” reminded me of Greenspan, a bit. I couldn’t understand either one of them, although Greenspan would go on and on and on and on…, but I really couldn’t understand “Anonymous.”