When the Bazooka Misses….

Something’s not right.


The New York Federal Reserve today said it would conduct $500 Billion 3 -month repo operations A DAY for the next 3 days.  That is a possible $1.5 Trillion worth of treasury buying.  This is not the typical “Not QE” we have been seeing since the Fall.  This is the real thing, real QE.  But one must consider that with such a HUGE move by the Fed, why did stocks pull back after a 150-handle rally in the S&P 500? Stocks rallied on the news from roughly 2500 to 2650, then traded back down to 2525? Something’s not right.

Source: Tradingview, CME, FOREX.com

What information can we get from this type of price action?  This tells me that there are still a ton of people who are long the market from much higher, and still have not capitulated yet!  They are willing to sell any bounce to get out, even if it means a “smaller” loss.   One would think that there is still room left for the markets to go on the downside.  In extreme selloffs like this, the move doesn’t seem to end until every long is squeezed out of the market!

According to CNN’s Fear & Greed Index, the market is now in “Extreme Fear” at 2!  The last reading before this article was at 2:22pm ET.  The Fed announcement was at 1:00pm, and yet the index is still at 2.  This is meant to be a contrarian indicator, just as any overbought or oversold oscillator.  However, just as with any oscillator they can stay at extremes, until they don’t.

Source: Tradingview, CNN, City Index

Take a look at the DXY.  Price had been moving higher all day. It seems that the US Dollar is now the “safe haven” currency.  However, on a 240-minute chart, the DXY is putting in a large shooting star formation.  As the announcement was released by the Fed, the DXY moved lower, as there would be a fresh supply us US Dollars in the market.  However, given the range of the day, 223 pips, one may have expected price to fall more than to the 38.2% Fibonacci retracement for the day.  Mixed signals. There is support just below at 97.19 (the low of the candle), but with such a huge supply of US Dollars by the Fed, one could have expected a much larger retracement!

Source: Tradingview, City Index

What now? 

Carry on.  There is a large band of support in S&P 500 from the December 2018 lows between 2316.75 and 2475.  That may seem like a rather large band for the S&P 500, however not these days.  In DXY, with a shallow retracement, watch if price continues the move higher.  If so, that will be confirmation that the bazooka missed its target!

Build your confidence risk free
Join our live webinars for the latest analysis and trading ideas. Register now

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.