The ritual has become as old and stale as it has become predictable: A central bank promises to continue the free money spigot and market participants pile into risk assets as we witnessed again with both stocks and supposed “hedge” assets such as Bitcoin immediately rallying in concert following yesterday’s Fed announcement.
I’ve long given up the hope that critical questions with follow up will ever asked of Jay Powell or any Fed Chair for that matter.
And so any discussion of the negative side effects of over-easy and relentless monetary policies that plague our society will get brushed under the carpet and instead ever higher market prices serve as the platform of unadulterated adulation.
The “maestro” that “calmed market” were some of the headlines that ensued:
Powell is a 'maestro,' calming markets when there could have been chaos https://t.co/DTDYU7Jrdh— CNBC (@CNBC) March 17, 2021
Yea, markets really needed calming to prevent utter chaos as markets have continued unabated on the path of new highs.
The savior moment was well advertised as markets were supposedly “hanging in the balance”:
Good morning. pic.twitter.com/RJPSBxrytu— Sven Henrich (@NorthmanTrader) March 17, 2021
Some things one can’t make up.
Indeed, Jay Powell the hero of the “underclass”:
Man, Powell is such a hitter. He is relentless in his desire to help the underclass in this country. More than anyone. It's truly incredible... and joyous!— Jim Cramer (@jimcramer) March 17, 2021
Never mind that the Fed has presided and instilled record wealth inequality expansion since the dawn of the age of permanent intervention, low rates and asset price inflation:
But if narratives of adulation is what people want to subscribe to they are welcome to them.
For what it’s worth here’s my alternative take on the matter in an interview on ausbiz from last night:
In the interview I mentioned the respect for the relentless market strength and intact market trends, but also expressed concern about rising yields and in context the broken trend in the Nasdaq and the absolute necessity for it to make new highs for failing to do so may invite a comparison to the March 2000 tech bubble burst that was only recognized in hindsight.
First let’s be clear Jay Powell’s maestro performance appears very much challenged at the time of this writing as the bond market appears to be openly challenging the Fed by producing new highs in yields:
That’s the bond market equivalent of dropping the hammer on the Fed’s happy narrative and risking losing the new market highs that ensued on the heels of Powell’s comments yesterday. Failed highs on charts never look pretty and risk a reversion trade of size especially as tech is once again under pressure in overnight following the renewed rise in yields.
Why is it all so critical?
Because, like in 2000, if you lose tech you may eventually lose the entire market even though the market may pretend tech is no longer important.
And be clear: $SPX, $DJIA and $RUT making new highs while $NDX is clearly not is an important sign of divergence:
In context it is notable that $NDX has acted very technically by rejecting the .618 fib and today’s overnight rejection is firming this divergence. Indeed we may be staring at a bear flag here similar to the construct we saw in 2020:
My view fwiw: Unlike other indices tech has broken its 2020 trend & remains below the 50MA.— Sven Henrich (@NorthmanTrader) March 15, 2021
It needs new highs soon or risks new lows coming.
Structure looks somewhat similar to 2020 w/ highs on a negative divergence.
Up to the Fed to drop those yields this week.$NDX pic.twitter.com/74011dGMZR
But be clear, unlike 2020 tech is historically much more extended than we have ever seen, and I mean ever. The monthly and weekly MACDs extensions are historically without compare. Not even the year 2000 comes close so one way oriented and uncorrected has the action unfolded:
But note the very pronounced negative divergences on the February tech highs. Not a pretty picture.
Indeed if the bond market drops the hammer on the Fed these charts suggest the nail has a lot of depth to go into.
Lest I’m accused of being a perma-bear again there is of course an alternative here and that is the savior of the underclass succeeds in getting yields to drop with a vengeance still.
After all $TLT is the most oversold ever:
Ever is a long time and one carefully dropped Fed announcement and $TLT could fly higher and yields drop like bricks based on this chart alone.
Should yields reverse in earnest before anything breaks then investors may have this bullish inverse to look forward to which would suggest drastic new highs in $NDX to come still:
That is unless this inverse is invalidated which at the time of this writing it is not, but it is also unconfirmed still.
Bottomline: A hammer will get dropped: Either on yields or the market. Happy trading.