It’s been a long time coming and the subject of unending debate.  Almost everybody expects a 25 bps cut — though those who argue against a cut make very compelling arguments.

Consider the last time the Fed cut rates.  It was December 16, 2008 and they cut the target rate range by 75-100 bps — the same extent that Trump is arguing for now.  The circumstances are clearly a little different this time:

Perhaps the biggest contrast between now and then is who’s running the show.It’s anyone’s guess what the FOMC will do and Powell will say.  Our analog suggests the market will be disappointed.  Our yield curve model suggests the market will be disappointed. The currency picture suggests the market will be disappointed.

Even the futures seem rather blasé following yesterday’s enthusiastic bounce on the SMA10.Most importantly, all the effort Trump has put into driving oil and gas prices lower in order to force inflation lower and pressure the Fed into more accommodative policy has: (a) already driven interest rates much lower, and (b) sends bearish signals to the algos which are largely responsible for the market’s day-to-day gyrations.

The Fed obviously knows this and has taken it into account in its rate decision deliberations.  It’s the most significant factor behind CPI dropping through Core CPI.The question remains whether or not the data they’ll depend in making their decision includes the stock market’s likely reaction — always a safe bet in the past.

We’ll find out shortly.

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Conventional wisdom says no one rings the bell at market tops.  We’re ringing it anyway.  If our analog is correct, this is about as high as stocks will go.  If SPX pops above 3047, then there’s more upside to come (with an asterisk referring to central banks of course.)  But, until then, momentum is with the bears.

“Targeting 2% inflation and bringing down unemployment” made for a nice central bank slogan. But, it’s really been all about running interest rates into the ground in order to generate higher prices.  In that sense, this has been a rousing success.

We’ll never know, however, what the economy would have accomplished without the so-called “wealth effect.”  And, we’ll never know what might have happened if prices had been allowed to clear via market forces.

Today’s poster child: McDonalds Corp.  See if you can spot the point at which the board decided to hop on the buyback bandwagon.Stay tuned.  It should be an interesting next few days.

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The wait is almost over.  Two weeks ago, I came across an analog that pointed to tomorrow, Jul 30 as a pivotal point in equities.  Analogs don’t always play out of course.  But, this one is important enough that it will tell us much about what to expect from equities, bonds, currencies and commodities — whichever way it breaks.

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In the opening scene of the wonderfully silly Scary Movie, the sultry heroine comes face to face with the masked killer.  She glances down at an array of conveniently placed objects: a gun, two knives, a grenade and a banana.  She ignores the weapons, of course, and grabs the banana.

I think the Fed is in a somewhat similar position.  They could attack the global slowdown and join with competing central banks, all of which have taken monetary stimulus to preposterous extremes.

Or, they could stick to their congressional mandate of maximizing employment, stabilizing prices, and moderating long-term interest rates. To equity investors, it would be the equivalent of grabbing the banana: a choice that would almost certainly lead to the death of the ongoing meltup.

This morning’s Q1 GDP read only increases the difficulty of their choice.  While many FOMC voters would no doubt prefer to thumb their nose at presidential interference, no one wants to be known as the one who pricked the equity bubble.

Our current analog suggests that whatever choice they make, investors will be disappointed.

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Draghi says he’s prepared to do even more (is there anything more than “whatever it takes?”) and the German 10Y continues to slump further into negative territory.

What did it accomplish, you might wonder?  While obviously not changing the prognosis that the ECB will soon be scooping up everything not nailed down, it did manage to break DB above the TL that’s been in place since Jan 2018 (whether it will stay there is another matter.)Meanwhile, the Fed’s task of justifying a rate cut just got a bit more complicated as durable goods strongly beat expectations.Stocks aren’t likely to respond favorably, though there’s now a bit of a technical buffer in the 10-day moving averages.

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The good news for bulls is that ES/SPX broke through the latest straw man trend lines yesterday and have (more or less) backtested them.  The bad news is that the Dow remains stuck below double overhead resistance and several Dow components feature charts that are anything but bullish.continued for members… (more…)

Many of the stocks and indices I follow are sitting right at resistance, as is ES this morning.AAPL has reached our target at the top of its falling channel……DB is bumping up against the TL from Jan 2018… …and BA is within striking distance of the channel top at which it failed yesterday.With VIX having reversed yesterday’s breakout and slumped back below its SMA10, the writing is on the wall — but, ES hasn’t yet broken out.  Why not?continued for members… (more…)

Thanks to everyone who attended our Boston CFA Society presentation on chart patterns and technical analysis.  As promised, here are the slides used in the presentation.  Please contact me with any questions.