BarroMetrics Views: QE III?
We live in interesting times. The market seems to coming to grips with the reality that the FED may not be able to sustain the stock market.
- At time of writing, the ESU1 continues to slip. We saw a close on July 11 of 1318.50. Today’s low is 1295.2 and is currently at 1310.50.
- Studies done by Rob Hanna show that the day before FOMC has a bullish edge. So it will be interesting to see July 13’s close.
- What is even more interesting is the FRED graph. Although the FED has said it will continue to buy securities after the end of QE II, we see that the FRED has turned down since June 30.Since the sub-prime, there has been a direct correlation between the FRED direction and that of the S&P. So is the FRED telling us the July high has come early and that August will be a more severe decline that I had first anticipated?
Whatever happens, the 1249 low, basis cash, is my benchmark price. Acceptance below that low, throws my stagflation scenario into doubt, and suggests that the Sept/Oct cycle high will be a secondary high. This would augur a hyperinflation led depression rather the 1966 to 1982 type stagflation.
If 1249 holds until the expected late Aug/early Sept rally, then I expect to see the Sept/Oct high peak above 1576 but hold below 1737. From this high, we should see the 666 low give way.
FRED
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