Fed Lightening Up Creates Stock Market Ceiling

Video Length: 00:15:06

In this video, we review key events affecting the S&P 500 ETF (NYSEARCA:SPY). The Fed's insane amount of support has kept markets from cutting in half. But fundamental earnings reports are starting to hit. Stocks are trading up on good news but actually down on bad news. Expecting many more bad earnings reporters tilts the scales to expect stock market downside. Plus, breaking a key level of SPY 275 tilts us bearish. An aggressive slice of 275 would give us conviction we can get back to the lows.

Look at this Fed data.

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The Fed was buying $60B a month at their peak early in the last decade. Now they were buying as much as $60B in a day. Oh my, that's just ridiculous support.

Without the Fed, the stock market would have probably looked like oil.

But in the last few days, I stopped getting so many alerts that the Fed was buying. I think that opened up a pocket of weakness.

I did get a couple of alerts today but that's something new.

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I guess the Fed didn't like the market down today, so they stepped in a little but not the needed $60B.

Also, IBM (NYSE:IBM) and Cadence (Nasdaq:CDNS) had bad earnings news and saw their stocks actually down. What an epiphany! Shares are actually down on bad news. So, the market is changing ever so slightly, but that deserves attention.

That tells me with much more bad earnings news to come, there's gravity sending things lower.

Breaking a key level of SPY 275 in combination with the Fed easing up, I think that's why we're starting to see stocks at least hint to start to trade like normal.

Lastly, the coronavirus case count has started to slow. That's, of course, good news. But the risk part of that - it can compel governments to open the economy back up, which can set the virus (hopefully not) back in motion. We don't want that and it would push out timetables, which is not good for anyone.

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You may get a bounce when there's hope of reopening economies, but there's risk to reopening as well if the virus hadn't been killed to zero.

If so, there could be more downside ahead.

Technically, here's what we're watching. Rather than making bold prognostications, I'd rather see what the market wants to do and what the market thinks is important. By watching market action and direction, we'll have a better shot of being on the right side of things.

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I want to keep watching action and direction and take it day by day. But below 275, I start to get more bearish again. A slice, and I build conviction.