Sunday, May 8, 2022

It's Not Higher Interest Rates, It's QT

SGS  Market Timer Status:  SHORT 
SHORT as of the close of Friday April 8, 2022
Previous SGS Status
SGS is a Long-Term (weeks to months) Timer
Why Market Timing Is A Must

Last Wednesdays the Fed announced details for their plan to reduce the Fed's balance sheet (a.k.a Quantitative Tightening, QT).  According to that plan, in June Fed's primary dealers are to sell $47.5 billions of Fed's assets that they are holding in trust, in July they are to sell another $47.5 billions, and starting in August, Fed primary dealers are to sell $95 billions of Fed's assets every month.  

That is an aggressive QT plan that will force Fed's primary dealers to sell some of equities they had bought using the margin created by assets they are holding in trust for the Fed.  As primary dealers unwind their equity positions to meet margin requirements, indices suffer; and that suffering will continue until the Fed is forced to either end its QT or significantly moderate it in a few months due to continued sell-off in equity and bond markets. 

SGS Market Timer

As of the close of last Friday (5/6), the value of SGS was calculated to be -1545 and the status of SGS remains SHORT. 

S&P 500 Support And Resistance Levels

Support and resistance levels for SPX for this week are shown above.  On Wednesday a lower than expected CPI (year-over-year) could caused a monster counter-trend rally.  A consensus read (8.1%) or worse, very likely would cause significant more selling.

My Plan


SPX: S&P 500 Index    SMA: Simple Moving Average
DJI: Dow Jones Industrial Index    EMA: Exponential Moving Average
DJT: Dow Jones Transportation Index    PDL: Primary Downtrend Line
NAZ: NASDAQ Composite Index    PUL: Primary Uptrend Line
RUT: Russell 2000 Index    ASL: Active Support Line
OEX: S&P 100 Index    ARL: Active Resistance Line
NDX: NASDAQ 100 Index    DTL: Dynamic Trend Line   
TUL: Tentative Uptrend Line   TDL: Tentative Downtrend Line
TLR: Trend Line Resistance   TLS: Trend Line Support

Disclaimer: The views expressed are provided for informational purposes only and should not be construed in any way as investment advice or recommendation.  Furthermore, the opinions expressed may change without notice.