Toeing The Line

Previously I showed a chart that represents a four $Trillion line created by the Federal Reserve since March of 2020. Today, for those that may have thought this “line” was simply a feature of pure happenstance, I can totally appreciate that discernment. For these “markets” have made more than a mockery of what used to be known as “qualitative technical analysis.”

Trust me, no one “gets it” more than I.

However, with the above said, that doesn’t mean that the art of deciphering price movements via the technical perspective is dead entirely. No, it just means, the one doing the analysis has to be, themselves, far more discriminating as to where and why one connects-the-dots. Or, said differently: Not only are you trying to interpret human reactions to price movements, but also, you are trying to interpret just what the machines have been programed as to react to those once inherent movements.

I know that may sound a bit (if not fully) convoluted. But, trust me, there is a reasoning to that “madness.”

There was a time, before the algorithms took hold and replaced for all intents and purposes the human aspect in trading, when lines were far more reliable, whether for support or resistance.

Today? It’s more like a “gauge” or an early warning “trip wire” indicator. i.e., It doesn’t have the same quantitative, as well as qualitative signalling power that it once had. It does at times (usually in very fast, panicked moments) but the usual has been more, resembling, any violation that signals impending downside pressure is to be bought with reckless abandonment. Emphasis on “reckless.”

Yet, now with the bulk of earnings season behind us, that “line” should be watched a bit more closely over the coming days and weeks because, it represents a trend that, in reality, cost 8 $Trillion+ to construct when you add in the U.S. government stimulus through both direct checks, as well as enhanced unemployment compensation. Not to leave out – the ability of not paying any rent or mortgage payments for over a year without fear of eviction.

That, is over, as of today. (caveat: unless some other emergency action via executive or court action is rendered, pronto.)

What’s also very important to remember is that it took all that stimulus (~8 $Trillion plus) to not only create it, but more importantly, to help support it as to when a dip below was signalling to be bought. To repeat what should be very important to those that are paying attention: That, again, today, is all gone.

You now, at best, only have the possibility of a 1.2$Trillion stimulus package coming forth any time soon, if at all and, the idea of an additional 3+ $Trillion to be dolled out drip-by-drip over a ten year period all but DOA.

Now, subtract from that the 4 $Trillion supplied by the Fed these last 18 months with what now seems in comparison a paltry $120 Billion per month, and you have a recipe for some downright awful set of metrics that will surely be unattainable. i.e. Jan 2020 investors were paying 19X for 2 year forward earnings. Today, they’re paying 25X for essentially the same dollar amount of earnings. Or, said differently

In Q4-2020 Revenue = $367.48
In Q2-2021 Revenue = $360.81

Maybe it’s just me, but that seems to be a very big issue not fully “priced in.” Or, do I dare say, when I listen to most of the mainstream business/financial media try and resolve this issue, it sounds a whole lot similar to the old laugh line: “Sure we’re selling at a loss, but we’re making it up on volume!”

As always, we shall see. However, for those that want to see how that “line” has been persevering as of late (e.g., as of about 1:00 pm ET today). To wit:

(Chart Source)

And for those that doubt the current efficacy of that line, here’s a close up. Again, to wit:

(Chart Source)

All I’ll say about the above is the following…

It’s not about whether it stays above it or, reasserts itself back topside after it breaks down through. No, what is far more important (in my humble opinion) is whether or not it begins to both mimic in description, then causes feelings described by Korn in a song called: “Falling Away From Me.”

Because if it does? It has a long way to travel with nothing below it ‘cept for ledges that will surely not give any pleasing sensation should they be touched.

Again, as always, we shall see.

© 2021 Mark St.Cyr

Note: This is not trading or investing advice of any sort. This commentary is for “big picture” discussion purposes only. Please read, or re-read the “About This Site” page for any questions or clarifications.