Saturday, September 5, 2015

March Of The Doves

The Market Trend Model (data sheet) continues to show a negative bias as the market indexes work off deeply oversold technical levels. Despite momentary appearances of strength, buyers have been unable to overcome the recent selling pressure as the major indexes failed to move through the highs of the previous week.

At the moment the weekly and monthly time frames appear to illustrate the market condition best.  The Nasdaq-100 (weekly chart) failed to overcome resistance around the 104 level, the Nasdaq (weekly chart) failed to overcome resistance around the 4,800 level, the S&P 500 (weekly chart) failed to overcome resistance around the 2,000 level and the Russell 2000 (weekly chart) remains deep within its current downtrend.

Slowing economic growth continues to concern both policy makers and market participants alike. Following in the foot steps of Janet Yellen and the Federal Reserve, European Central Bank President Mario Draghi "jawboned" markets on Thursday when he stated the European Union could further juice markets with additional quantitative easing (article).

The U.S. market reaction to a possible expansion of European "QE" was swift as the Dow Jones Industrial Average climbed nearly 200 points before giving all of the gains back by the market close. The selling continued into Friday when the U.S. employment report did nothing to ease investor concerns about lukewarm economic growth.

Despite investor behavioral changes since the financial crisis, it appears to me that Quantitative Easing may have finally lost its ability to "stimulate" markets as market participants put more and more weight on actual economic conditions across the world. The following chart illustrates the power of Quantitative Easing and its ability to push markets higher:

Chart Courtesy of Standard & Poor's                                                                                                                                                       

However, in light of the Federal Reserve's own admission that Quantitative Easing has had no directly measurable economic effect (article), any additional QE policy becomes increasingly less likely to produce the results of prior years.

At the moment the market continues to follow the central bankers' "March Of The Doves" as government policies around the globe continue to do everything within their powers to stave off and avoid a deflationary spiral in a slowing economic landscape. After a 6+ year stock market run the markets may just follow the central banks into the next financial crisis like lemmings walking off of a cliff.