Is Central Bank Influence Fading?

by: Alan Rohrbach

Once again the influence of the ‘Yellen Put’ is evident, with the US equities strengthening again on weak news. Presaged by the global macro warnings (OECD and IMF) two weeks ago, the weak data (including US) just keeps on coming. The latest of that was US Durable Goods Orders that did not rebound at all as expected after last month’s debacle. And with only a very few bright spots the global economic data has exhibited the serial weakness that the OECD Composite Leading Indicators and IMF World Economic Outlook had anticipated two weeks ago.

The technical trend problem is the amount of time June S&P 500 future (CME: SPM6) has spent ‘hanging around’ the low end of 2,075-85, which also means that ostensible 2,078 major UP Break. (See the video for more specifics.)

This is not typical. It should have only seen the most fleeting test of that area into very aggressive buying if it was as bullish as that major UP Break would suggest. While the UP Break can maintain for a while, unless there is more aggressive extension of the uptrend above the 2,103-10 resistance which was tested last week prior to a post-ECB downside reaction, the overall rally might be ready to reverse.

In fact, that weakness in spite of accommodative views at the ECB meeting points out the degree to which central bank accommodation may no longer be sufficient to overcome serial weak data. That premise has been gaining more adherents of late, and will be roundly tested after the FOMC statement Wednesday afternoon, and BoJ announcement early Thursday morning (i.e. not too much later.)

As we have explored many aspects of it at length in previous analysis, we can only restate our cautionary word on the misplaced tendency toward believing central banks can resuscitate robust growth from prior to the 2008-2009 crisis:

The next financial crisis will occur when the investment and portfolio management community (and ultimately the investing public) realizes that the central banks alone cannot restore the robust growth from prior to the 2008-2009 financial crisis.

That more independent analysts, government officials, non-governmental organizations and especially the ECB’s Mario Draghi now echo a position we have been articulating since January 2015 makes this a more fraught phase for the US equities.

However, it is always important to see the confirmation of any fundamental assessment in the Evolutionary Trend View (ETV) of the actual price movement. And that relates to the key price levels noted above.

Disclosure: the author has no position in the stocks mentioned.

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