BarroMetrics Views: The S&P and QE
Earlier in the year, my overnight trades went into ‘ebb state’. Normally reliable change in trend patterns continually failed. It was not until I realized that QE II had fostered a belief that the FED would and could prevent a sustained stock market sell-off that my trading results recovered from my slump.
We saw this sentiment raise its head again last night on CNBC. A renowned ‘local’ was expounding the view that the S&P was a buy yesterday ahead of FOMC. “A good number will see a rally; a bad number will reinforce the belief that we’ll see QE III”. His apparent assumption was that all the FED had to do was prime the pump and all would be well.
Well I lived through a similar cycle in 1970 to 1982. At some point inflation will raise its ugly head and we’ll say ‘hello stagflation’. That point won’t come until the FRED graph shows the QE funds hitting Main Street. And speaking of the FRED….
The latest graph shows that, since the end of QE II, we are seeing funds released (i.e. a decline in FRED). It’s too early to say whether this is a knee-jerk reaction blimp or a sustained down move. So far sustained down swings in FRED have 2 to 6 weeks later produced a strong down draft in the S&P.
On Monday, I’ll consider the possible FRED action and the cycle view I have been expounding:
- Up in July
- Down in August
- Rally into a Sept/Oct top that will mark the beginning of the move to below 666
FRED
Refer this blog post to a friend or colleague…
