Replies to post #11740 on General Stock Ideas

[gfp927z]

Bigworld, >> The Fed will not prop up the markets in the Trump era like they did under Obozo. The Deep State would rather see Trump fail, and nothing will make him as unpopular as a bear market. <<


You're making a lot of assumptions there. Right now the Fed reportedly wants more than anything else to normalize interest rates so they'll finally have some ammo available again in their bag of tricks when the next financial crisis hits. Rickards says the Fed is 'desperate' to normalize. What stopped them in the past was that as soon as they announced their intention to tighten, the market would fall out of bed, and they'd have to back off (also had the Chinese yuan devaluation in mid-2015 and the Brexit last summer, which delayed the interest rate 'lift off')

So the Fed has a strong incentive to keep the markets from selling off too much. They don't mind some consolidation since they don't want an unsustainable bubble situation to develop, but if they allow the market to really start to tank, they'll have to postpone or cancel their normalization/tightening plans.

Looking at the RUT chart, a healthy consolidation in RUT would be for it to come down to the rising 200 MA (1280). So far it's holding the 1350 support, but if that is broken then next interim support looks like 1315 area (early Dec low), and below that would be the 200 MA (1280), and then the broad band from 1200-1270 (the general trading range from last Fall). To break below 1200 would start to get more serious, so the Fed would probably get the juice machine cranked up in earnest.

But better to get cues from the S+P 500 and DJIA though, rather than the RUT, since those are the primary indices the Fed cares about. As the TA gurus over at Stockcharts.com point out, the RUT and QQQ are primarily useful as a gauge of investor's appetite for risk. Like the canary in the coal mine, if RUT and QQQ start to tank big, then the broader market could then be in significant trouble.

They also watch the retail and consumer discretionary ETFs (XRT, FXD) as further canaries in the coal mine which will tend to tank before other sectors and the broader market. So far XRT and FXD have been holding up pretty well, but when they tank then look out below. The US economy is mostly consumer driven, and when the consumer pulls back that's a bad sign for the economy. If XRT breaks below 38 that would be a clear heads up (currently is 41).