BarroMetrics Views: S&P – At Crossroads II
A short notice: I’ll be away in Switzerland until Nov 12 so I expect my blogs and newsletter to be affected. My apologies for the intermittent publication till then.
This was written prior to the price action of Oct 31, so it will be interesting to see how the S&P behaves tonight. But, based on the response to the FED announcement that QE has ended, I’d expect to see new highs. First target (basis cash) is 2178.26, second target is 2404.04. But, the targets are not the subject of this piece.
Instead, I’d like to point to an event that seems to have flown under the radar.
On March 15 2014, I wrote a piece called “The Nature of Events” where I re-introduced Pete Steidlmayer’s ‘surprise, expected, and unexpected’ classification of fundamental events. Last night, the FED terminated QE. Based on the comments by some FED chiefs on the poor recent data, there appeared to be an expectation that the end of QE would be delayed. Instead, it ended on schedule.
(The response to the news was an initial sell in stocks and gold, accompanied by rally in the US$. The S&P recovered enough by close of trading to expect to see a strong show tonight).
So, was the FED announcement a surprise, or unexpected event? In my book, it was the latter. Yellen has been characterised as a ‘dove’, so say a ‘super dove’. In my book, she had every excuse to keep QE going: recent mainstream news for the US economy was worse than expected numbers. Instead, QE ended on schedule. It may be that Yellen is more of a realist that I gave her credit for; if so, we are likely to see an increase in rates sooner than expected, we’ll see.
Right now, the belief that the FED will be the ‘S&P’s supporter of last resort’ is still in play; and, given the last night’s price action, and especially if we see a strong move up tonight, I’ll return to my strategy of being ‘long or out’.
I am still awaiting the Black Swan that will shake the belief in the FED. If my cycle work is correct, we can expect to see that event between Nov 2014 to Mar 2015. But, till that Black Swan takes place, I prefer to be ‘long or out’.
(By the way, I’ll complete the piece on “Single Most Important Reason” either Friday or next week).