It has been 10 days since the now famous Federal Reserve interest rate announcement, with the markets having reacted as if Janet Yellen had not said a word. For in the past when the Fed spoke of raising interest rates, a decision to keep them near zero had always resulted in a new sweep of buying that brought the markets to new all-time highs. But after equities reached their apex in back mid-May, more than 2000 points have dropped from the Dow index alone, and the S&P 500 on Sept. 28 crossed down below the dreaded Death Cross which may have signaled that the central bank ‘Yellen Put’ may have finally ended in the bank’s policy of propping up stocks.
Something momentous is brewing in the markets.
Since 2009, the markets have always responded to Central Banking prodding. Whether it was the announcement of a new monetary program, interest rate cut, or even mere verbal promises of “doing whatever it takes,” Central Banks were always able to kick off a stock market rally when they wanted to.
Perhaps the best example of this was the US Federal Reserve’s ability to ignite the S&P 500 when it came dangerously close to collapsing. When stocks are above their 50-week moving average, they are in a bull market. When they break below it, they are in danger of a collapse.
Which brings us to today.
Stocks have cratered, slicing through the 50-week moving average with little difficulty. The Fed, unable to announce a new QE program due to political pressure (the media has picked up the narrative that QE increases wealth inequality) decided to deal with this by maintaining interest rates at zero at a time when over 80% of economists thought it was time to raise them.
Despite this, stocks barely bounced and began to break down again. A TECTONIC shift has begun in the markets, if they no longer respond to the Fed’s efforts to boost them, then it is GAME. SET. MATCH. for the Fed and its policies.
At that point, the END GAME will begin, ushering in a crisis that will make 2008 look like a joke. – Phoenix Capital Research via Zerohedge
A Death Cross technical means that the short and long term trends of a particular stock or market are pointed towards decline, and unless a strong bounce off this floor is achieved within a few days, the likelihood of a continued decline is almost always certain.
The Fed has for several years now funded banks to buy stocks and indices, and even funneled money to foreign central banks (Swiss) to do the same thing. But it appears that the over-leveraged and over-bought equity markets have been unable to bring in ‘suckers’ from the retail side to fill the gaps of insider selling, and with fewer buyers sitting on the bid, all indications point towards a move well into Bear market territory, and perhaps even a return to market levels that occurred before the Fed began their quantitative easing programs.
Kenneth Schortgen Jr is a writer for Secretsofthefed.com, Examiner.com, Roguemoney.net, and To the Death Media, and hosts the popular web blog, The Daily Economist. Ken can also be heard Wednesday afternoons giving an weekly economic report on the Angel Clark radio show.