The major headwind of higher rates has pushed the bull market into a choppy, sideways mess so far this year. Whether it can resume its uptrend that was quite clean from November 2016 to January 2018 remains to be seen. It will be a tug-o-war between the Federal Reserve further reducing its balance sheet vs. global QE which remains at or near record levels and has served to push the US stock bull market into its tenth year.
The material change in quantitative tightening correlates well with the struggles of the US stock market so far in 2018:
Meanwhile, bank loan growth stands at nearly 0% year over year as the flattening yield curve makes bank loans less profitable. This is concerning as we have not had such a situation since 2009. Further, given that bank loan growth was $200 billion in 2014, this is a huge negative hit to not just bank loans but also to money supply growth. This means the federal reserve has even less room to tighten and shrink its balance sheet.
If the Federal Reserve continues to tighten monetary policy with its planned rate hikes through the end of 2018, the money supply growth will contract to nearly 0% by the end of 2018. This will negatively impact GDP, pushing the US into a full blown recession. The last time such a steep drop in money supply occurred was in 2009 due to the financial collapse of 2008.
Money Supply Growth With Estimated Federal Reserve Tightening:
The stock market could therefore continue to sputter at best should the Federal Reserve continue its pace of rate hikes through the end of 2018.
Undercut & Rally Works Well in Sputtering Market
Wyckoff undercut & rally entry points have worked especially well this year as the up-and-down stock market has provided superior low risk entry points in a number of fundamentally strong names.
Undercut & rally patterns help keep risk to a minimum so your risk is just a couple percent or less should the market falter. In such cases, small profits can even be taken instead of waiting for the market to further reverse. Gains from the names that work more than outweigh any small losses.
Futures are higher on news President Donald Trump was working with Chinese President Xi Jinping to keep struggling Chinese telecom giant ZTE in business. This suggests an improvement in trade talks between the two nations.
Market Lab Report - Premarket Pulse 5/14/18 - Undercut & Rally Remains Successful
|Published:||14 May 2018 07:32 ET|
Like what you read?
Let us help you make sense of these markets by signing up for our free Market Lab Reports:
This information is provided by MoKa Investors, LLC DBA Virtue of Selfish Investing (VoSI) is issued solely for informational purposes and does not constitute an offer to sell or a solicitation of an offer to buy securities. Information contained herein is based on sources which we believe to be reliable but is not guaranteed by us as being accurate and does not purport to be a complete statement or summary of available data. VoSI reports are intended to alert VoSI members to technical developments in certain securities that may or may not be actionable, only, and are not intended as recommendations. Past performance is not a guarantee, nor is it necessarily indicative, of future results. Opinions expressed herein are statements of our judgment as of the publication date and are subject to change without notice. Entities including but not limited to VoSI, its members, officers, directors, employees, customers, agents, and affiliates may have a position, long or short, in the securities referred to herein, and/or other related securities, and may increase or decrease such position or take a contra position. Additional information is available upon written request. This publication is for clients of Virtue of Selfish Investing. Reproduction without written permission is strictly prohibited and will be prosecuted to the full extent of the law. ©2023 MoKa Investors, LLC DBA Virtue of Selfish Investing. All rights reserved.