FAST FIVE: Trade Deal Done? Is 3300 The Next Stop For The Market?
There is likely a tradeable opportunity approaching for a reflexive bounce given the depth of selling over the last couple of weeks.
With a “risk-on” signal approaching and the market not back to egregiously overbought, there is room for the market to rally from here.
Let me repeat what we wrote back in July: “As we face down the last half of 2019, we can once again run some projections on the bull and bear case going into 2021, as shown in the chart below:” The Bull Case For 3300 Momentum Stock Buybacks Fed Rate Cuts Stoppage of QT Trade Deal However, while the case for a push higher is likely, the risk/reward still isn't great for investors over the intermediate term. A failure of the market to make new highs, given the amount of monetary support, will be a very bearish signal.
The last point was detailed in a recent FOMC release: “In light of recent and expected increases in the Federal Reserve's non-reserve liabilities, the Federal Open Market Committee (FOMC) directed the Desk, effective October 15, 2019, to purchase Treasury bills at least into the second quarter of next year to maintain over time ample reserve balances at or above the level that prevailed in early September 2019. The Committee also directed the Desk to conduct term and overnight repurchase agreement operations (repos) at least through January of next year to ensure that the supply of reserves remains ample even during periods of sharp increases in non-reserve liabilities, and to mitigate the risk of money market pressures that could adversely affect policy implementation.
(Courtesy of ZeroHedge) The problem for the Fed, is that while they insist recent rate cuts are “mid-cycle” adjustments, as was seen in 1995 to counter the risk of the Orange County bankruptcy, the reality is the “mid-cycle” has long been past us.