Dear Jerome: Good Luck This Week, You’re Gonna Need It

As we sit here and await the new week of “market” machinations still basking in the afterglow of what can only be called a resumption of BTFD (buy the f’n dip) euphoria. It appears the old expression in regards to the Federal Reserve and the “punch bowl” has morphed from being the so-called “adults” in the room and taking it away when prudent, to one similar to a parent trying to ween their kid off of a smart-phone. i.e., The sooner they (children) start screaming (the louder the better) – the sooner they’ll get it back.

It appears that a 20% sell off scream was all it takes today, for get it back they did.

Well, sorta, is probably more like it, which is where the real ramifications now await. i.e., followthrough on promises made.

Make no mistake “sorta” will not cut it to either the “markets” or that hypothetical child. Mr. Powell, along with others of the Fed, insinuated via the customary Fed-speak that they would return the so-called “punch bowl.” i.e., halt or “pause” the balance sheet normalization schedule (QT) along with halt or “pause” any further rate hikes.

Think of it as the equivalent of that aforementioned “child” being returned their $1000+ phone. The “markets,” much like that child, are not expecting nor will they be satisfied with any sort of implied – maybe. They are expecting delivery of said promise, in hand – Wednesday.

If the Fed thinks it can talk its way out of not producing (via verifiable deed and explicit wording) and promising another “maybe” as some sort of parental “we’ll see” insinuation for the next meeting? I’ll only say one thing…

Good luck with that, you’re gonna need it.

To a child, as well as these markets, any form of insinuations or alluding to returning something they want means the same. e.g. you promised, now give it back!

The adult can sit there till the stars burn out trying to explain how they really never did “promise.” But as anyone who’s ever dealt with a demanding child – maybe means promised or, you’ll pay the price one way or another.

However, this is far from the only issue that will be surrounding those still basking in the afterglow. Because when it comes to the potential hangover awaiting this latest three week excursion of BTFD exuberance – the potential for any headaches turning into clinical, fetal-position inducing migraines are significant.

Let’s just remember where we are and how we got (back) here for a moment as to re-emphasize the reasoning for caution.

Three weeks ago the “markets” were plummeting and if not for the Treasury Secretary openly implying that the PPT (plunge protection team) was being asked to suit-up and be ready-to-engage they may be well lower. This then prompted (I would use the word demanded, but that’s just me) not only the Fed Chair but also others within the Eccles Building to get in front of anything with a camera, microphone or keyboard and jawbone as much “pause” as plausible.

So far it has worked. Well, then again, sorta. Let’s look at a few of what they call in Silicon Valley “pictures” to put things in a bit more perspective, shall we? To wit:

I posted the above chart back on Jan. 17th and indicated that the “anywhere in here” was an area worth watching for further clues. It seems my hunch was correct. Although we have bounced above it we have also bounced back squarely within it over several days. Here’s an updated version. Again, to wit:

(Source)

The reasoning why the above are significant is via their technical implications, for if we fall back through and below that notated “anywhere…” level, then there is a higher possibility we resume the prior selling of December with a quick test into the “then here” levels, retesting the lows of only a few weeks ago.

The real issue for both the “markets” and the Fed will be if that low holds. If not? Everything as far as further calamitous upheavals of panic and more are squarely back on the table.

Make no mistake about it, regardless of what the so-called “smart-crowd” across the mainstream financial/business media insinuates. Should we get back into that area (as in Dec. lows) everything, and by that I mean just that – everything – is back squarely on the table.

Speaking of “table.” Let’s look at what other potential menu items are due to be served-up this week that have the potential for giving the “markets” an acute case of indigestion.

  • A Chinese trade delegation arrives Monday for supposed “talks.”
  • Caterpillar™ reports earnings. A significant global-health bellwether.
  • Apple™ reports Tuesday. Need I say more?
  • Then, throughout the week you’ll have others such as Facebook™, Amazon™, Boeing™ and of course everyone’s “I gotsta know” favorite, Tesla™.
  • Thursday is the end of the month so the normal gyrations apply, as well as the same for Friday, for that’s the beginning of the new month for February. Or said differently – look for normal month-end and month-start hyper positioning activity to go to 11.
  • Friday we are also to get the latest jobs report. We may also (conjecture but noteworthy) since the government shutdown has been put “on pause” we could have a slew of prior unreleased reports suddenly being released, unannounced. Again, conjecture but noteworthy should it happen.
  • Since the government will now be open – the now open and newly appointed House with its various “impeach at any cost” committees will be free to resume, will they make up for lost time and interject their views into the “markets?” Hint: Bank CEO’s, congressional panels.

The above is only a handful of what is on-deck for this coming week. And smack-dab in the middle of it we have what may be the most important Fed meeting (Tuesday and Wednesday) of the entire year as far as the “markets” are concerned.

To say there may be a bit of pressure on the Fed this time around may just be worthy of the term understatement as ever there was.

However, there is also a flip-side to all this, and it is this:

As much as there is the potential for calamity there is also the same potential for more – far more – BTFD exuberance and euphoria should any of the above listed turn into favorable outcomes.

As one can see on the above chart I notated with the “anywhere…” box, the “markets” are currently sitting above, and in actuality, gapped higher to those up-and-out levels on several occasions where they remain as of this writing. Meaning: The hope is for Mr. Powell to return the necessary “punch bowl” to help fuel its progression onward and upward.

Remember: the “markets” (much like that child I cited prior) are of the assumption their “punch bowl” is to be returned on Wednesday.

Should Mr. Powell take to the stage in the Wednesday presser and deliver something of the equivalent to antacid and aspirin Fed-speak, as opposed to a punchbowl filled with some hair-of-the-dog type equivalent. This market is going to show just how childlike it can be when said “child” suddenly finds out they’ve been duped by mom or dad and their $1000+ smartphone isn’t forth coming.

As I said in the beginning, if that happens?

Good luck with that, you’re gonna need it.

© 2019 Mark St.Cyr