Technically Speaking: Bulls & Bears Square Off At The Line

Posted by Lance Roberts

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Bulls & Bears Clash At The Line

On Monday, the bulls and bears fought over the 200-dma. It seemed at the open as if the bears were close to taking control of the market. However, the tide quickly turned. With markets plunging again at the open, and with Jerome Powell’s personal fortune on the line at Blackrock, the Fed took quick action:

Here is the aptly timed press release putting causing bulls to “rush back in:”

The Federal Reserve Board on Monday announced updates to the Secondary Market Corporate Credit Facility (SMCCF), which will begin buying a broad and diversified portfolio of corporate bonds to support market liquidity and credit availability for large employers.

As detailed in a revised term sheet and updated FAQs, the SMCCF will purchase corporate bonds to create a corporate bond portfolio based on a broad, diversified market index of U.S. corporate bonds. This index is made up of all the bonds in the secondary market that U.S. companies have issued to satisfy the facility’s minimum rating, maximum maturity, and other criteria. This indexing approach will complement the facility’s current purchases of exchange-traded funds.

The Primary Market and Secondary Market Corporate Credit Facilities were established with the Treasury Secretary’s approval and $75 billion in equity provided by the Treasury Department from the CARES Act.”

The Fed’s announcement was unnecessary as it only repeated the original mission of the SMCCF. The made made no changes to the program, but with prices off steeply Monday morning, it seems as if the Fed needed a “quick fix” to prevent a larger downdraft.

The good news is the bulls were able to defend the 200-dma once again successfully. However, the bears aren’t quite ready to give up just yet.

The Bull’s Case

The bullish case for the market is pretty thin.

  1. Hopes are high for a full reopening of the economy
  2. A vaccine
  3. A rapid return to economic normalcy.
  4.  2022 earnings will be sufficiently high enough to justify “current” prices. (Let that sink in – that’s two years of ZERO price growth.)
  5. The Fed.

In actuality, the first four points are rationalizations. It is the Fed’s liquidity driving the market…CLICK for complete article