Market Direction: BEARISH alert
issued 8/10/2017
A change is coming...
The
stock market keeps climbing. The bearish alert seems to be all but over. The
only thing preventing a market direction change alert is confirmation in our
model clearing the last hurdle. The handwriting is on the wall as the Dow,
S&P 500 close today at records as the Fed announces October starts the ‘great
unwind.’
Wall
Street investors have shrugged off recent worries to propel stocks to fresh
all-time highs, but this week’s meeting of Federal Reserve policy makers might
provide investors the clearest sign yet about the health of the U.S. economy
and how the central bank is construing stubbornly low inflation.
The
Fed gathering set to conclude Wednesday comes against the backdrop of a host of
recent events that market participants are anticipating will factor in policy
maker’s decision making: The economic impact of Hurricanes Irma and Harvey, sluggish inflation, the outlook for
fiscal stimulus out of Washington, may be a just a few of the topics that are
broached. (That is not even to mention the incalculable risks out of the Korean
Peninsula).
Although
Janet Yellen’s Fed isn’t expected to make any change to interest rates, it is
anticipated that it will lay the groundwork for unwinding its $4.5 trillion
balance sheet, if not announce its start. The coming asset-portfolio reduction
has been an important focus for markets because of the unprecedented nature of
unraveling a nearly decades long initiative of monetary stimulus, which could
further tighten borrowing costs for individuals and corporations.
Yellen
is likely to emphasize that normalizing the balance sheet is going to be
gradual so as to avoid disrupting markets, said Paul Ashworth, chief North
American economist for Capital Economics.
The
plan is to shrink by only $10 billion a month, with the pace increasing by $10
billion every quarter, up to a maximum of $50 billion a month.
Bond
and currency markets, which have been the most attuned to Fed policy, will
experience the greatest degree of volatility if there are any Fed surprises.
The
yield, which moves inversely to prices, on the 10-year Treasury note TMUBMUSD10Y, -0.08% has climbed to around
2.22% as of early Wednesday’s trade, compared with 2.05% on Sept. 11. The U.S.
dollar DXY, +0.13% has also reclaimed some lost ground.
However, both the dollar and yields remain near historic lows despite being in
the midst of a rate-hike cycle that should theoretically buoy the pair. Higher
rates make the buck more attractive to traders, while pushing up yields on
bonds as investors await fresh issuance bearing richer coupons.
Some
market participants attribute a combination of fluctuating risks centered on
North Korea’s military aggressions, and fading expectations this year for the
pro-growth policies promised by President Donald Trump during his presidential
campaign. Political doubts have been underpinned by increased partisan tension,
though a glimmer of bipartisanship has offered some promise of successfully
pursuing tax reform, deregulation, and increased infrastructure spending in the
coming months.
Stock Market Bull Run May Depend on Fed's Next Move
Some
of that hope has filtered into stock markets, with the Dow and the S&P 500
and Nasdaq at records. The Dow Jones Industrial Average DJIA, +0.19% on Tuesday closed up 39 points, to
0.2%, at 22,370, marking its sixth straight record close and its eighth
consecutive day of gains. All three benchmarks finished Tuesday trade at all-time highs.
Last week, the blue-chip gauge booked a gain of
2.2%, marking its best weekly advance since the week ended Dec. 9, according to
FactSet data.
Meanwhile,
the U.S. officially hit $20 trillion in debt, with about
half of that added over the past decade or so.
The
2007-09 recession, brought on by the collapse of the U.S. housing bubble, is at
least partly to blame, with the government responding with huge bank bailouts
and the stimulus programs. In fiscal years 2009-2012, deficits exceeded $1
trillion.
James
Rickards, attorney and finance commentator, in the Daily Reckoning blog said the
current level of inflation, running below the Fed’s 2% annual target, is
partially tied to the increase in the deficit.
“Now,
the Fed printed about $4 trillion over the past several years and we barely
have any inflation at all. But most of the new money was given by the Fed to
the banks, who turned around and parked it on deposit at the Fed to gain
interest. The money never made it out into the economy, where it would produce
inflation. The bottom line is that not even money printing has worked to get
inflation moving,” Rickards wrote.
On
Wednesday, the market will see what the Fed has to say about the state of inflation
in the world.
Beyond
the Fed, the Bank of Japan is slated to deliver its updated policy statement on
Thursday.
$tockMarketDirection proprietary model is currently BEARISH. We strongly encourage you to monitor
positions closely, exercise proper money management strategies and follow us at $tockMarketDirection for ALERTS we
may issue advising a change in the current market direction. Stay tuned
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The all-time lows since our initial
recommendation to go SHORT
this market. Here is how the markets have performed:
Stock Market
Direction Recommendation (8/10/2017)
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Dow
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down 243.67 points a 1.12% gain
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8/21/17
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Nasdaq
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down 39.68 points a 0.64% gain
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8/21/17
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S&P 500
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down 20.86 points a 0.86% gain
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8/21/17
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Related Link: http://www.stockmarket-direction.com/
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