Fear to Fight the Central Banks
Since the announcement of the so called QE4 and the subsequent lackluster US stock market performance, the question many traders are facing is: what is the Fed attempting to do?
Let's try to answer the question:
The Fed is attempting to provide more time for the housing market to recover, and due to the fact that most US families are heavy invested into the stock market, it's trying to push investors into risky assets so to improve credit conditions and consumer confidence.
Are they achieving it?
Take time to answer to this question, the reason is that you cannot take the past few days' performance as a benchmark. Why?
Because after the QE2 announcement we had 4 week sell off just to see the market going ballistic straight into the spring of 2011. And what sparkled all these was the new cash that was flooding the system.
What the QE2 taught is that: the first reaction is not always the right one.
But if the aim was to bring investors into risky assets, why the Fed was not buying itself the market as China has done during the night?
As a matter of fact state backed institutions were buying shares as a manufacturing survey added to optimism the world's second-largest economy will rebound according to Bloomberg.
The Shanghai Composite Index climbed 4.3% to 2,150.63 at the close, with volume more than double the 30 day average. The financial subsector surged 6.7% on signs the government will allow more funds to buy equities.
So we got: the Fed aiming to push investors into the stock market, the Chinese buying into the market directly, has Mr Draghi been left out of the game??
Not at all the Draghi's warning to the “short” side of the market sparkled a 20.57% increase into the Stoxx50 since the 24th of July.
Here is my question now: Is this market just the reflection of investor's fear to fight Central Banks ?
We all know the old saying: Do not fight the Fed!!
Originally posted at www.77sigmatrading.com
The following article is from one of our external contributors. It does not represent the opinion of Benzinga and has not been edited.