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This Has Never Happened Before...

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.

I use the 50-week moving average as the standard for determining a bull market vs. a market collapse. 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.

As you can see in the below chart, this line has been of great import for stocks in the past.

 

 

Once the Fed managed to kick off a new bull market in 2009, it became imperative to maintain the upwards momentum. As you can see in the chart below, there were two times in which the S&P 500 was in danger of ending this by breaking below the 50-week moving average: once in 2010 and again in 2011.

Both times the Federal Reserve was able to reverse this by announcing a new monetary program: QE 2 and Operation Twist, respectively.

 

 

The Fed also implemented policies to propel stocks higher when they hit this line in 2012, first by promising QE 3 and then unleashing QE 3 in September and November 2012 respectively.

 

 

Because the Fed was always willing to step in to prop up stocks any time they were in danger of breaking down, investors became conditioned to always assume the Fed could ignite a market rally.

Indeed, by the time 2014 rolled around, investors were so conditioned to believe in the Fed's omnipotence that it only took a non-voting Fed President to suggest a change in monetary policy to boost stocks when they came dangerously close to breaking down in October 2014.

 

 

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.

 

 

This has NEVER happened before. Previously even a hint of monetary loosening was enough to make stocks rally hard. This time around the Fed clearly acted to support the markets and the markets didn’t respond.

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.

Smart investors are preparing now, BEFORE it hits.

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