The breakdown of full time vs other categories. When you fall off unemployment benefits as some 3 million people are set to do this year as Congress failed to continue extended benefits in their budget, you are not considered unemployed, you are considered "Not in the labor force", therefore you are not counted when they put together the unemployment data, you are not in the labor pool even if you want or desperately need a job, this is the magic of goal-seeking numbers just like seasonal adjustments.
The truth is since the 2009 economic lows, every job gained has been matched with one lost that has fallen out of the Labor force participation rate so naturally unemployment looks better than it actually is. The number of people not in the labor force has increased since early 2009 by 12.8 million with another cumulative 3 million to be added through 2014, which is a record high at 92 million Americans not in the labor force.
The point here is not so much about how bad the US economy truly is and why the market is where it is compared to 2005 when consumer spending (mostly from home equity) was propagating a "healthy" economy at the time of course until it didn't with the burst of the bubble.
The point is what did QE do? The F_E_D has expanded their balance sheet to nearly $4 TRILLION and much of that went straight to the market through QE or more specifically POMO operations. It is my view that QE was nothing more than a stealth bailout of the banks, you may recall the public outrage of the bailouts of AIG, GM, etc? Well what better way to do it than QE. This was tried before, actually right in to the 1929 crash, at least it did something for the economy back then for a while before crashing the market.
Volume should advance on moves to the upside, even with such a large F_E_D balance sheet expansion going largely in to the market, can you imagine what would have happened to the market without it?
The recent April window dressing that saw a record of 1-day loans by banks from the F_E_D to prop up their balance sheet might tell us that they're in more trouble than you might think despite the stealth bailout.
Again, this is not the point. The SPX has discounted (as markets do, usually 6 to 12 months in advance) the F_E_D's balance sheet expansion during multiple episodes of QE, Operation Twist, Twist light, etc and there's a correlation, how ever with the F_E_D not only backing out of accommodative policy, but now for the first time openly warning about the market's exuberance, that part is ending.
If you take the correlation and extrapolate out the rest of the F_E_D's balance sheet expansion through the end of the taper, the SPX is now about 25 points above the correlation to the F_E_D's balance sheet that is about to meet an abrupt halt in market timeframe terms.
The point is more about the market's propensity to front-run the F_E_D, meaning to act on what the F_E_D is expected to do before they do it. To demonstrate this I borrowed another chart (as I don't have time to make Excel charts during or even after market hours), the data comes from the St. Louis F_E_D...
As some of you know, the antiquated Rate of Change is one of my favorite indicators, add it to just about any standard technical indicator and you'll increase sensitivity and performance. This chart shows a 13 week ROC of F_E_D assets (blue) vs a 13 week ROC of the SPX (red).
Now you have to look closely, at the bottom of the 2010 period the SPX front ran the FED, at the top of the ear;y 2011 period, the SPX front ran the F_E_D. At what looks like an Inverse H&S bottom from late 2011 to mid 2012 (in blue), again, the market front ran the F_E_D.
As the taper is in effect, the market is right there at the F_E_D's correlation, actually as mentioned, when extrapolated out to the end of the taper, the SPX is about 25 points rich to the correlation.
Now, you may remember back when we were still in the large +3/-3% range in May, based on our concepts alone and then especially around the bear flag starting on the 15th which obviously was not a bear flag as there was accumulation on a smaller scale, but enough to kick start the market through the range resistance, I had posted numerous times that it was very high probability that the market would not make a break lower until there was a head fake move above the range in place.
I don't have a lot of time to look for the exact posts from several weeks ago, but this one from May 23rd, A.M. Update, which was the first day above the range, however this was an a.m. post, before the market had moved above the range, shows we had been talking about this a lot as head fake moves in almost any timeframe are seen about 80% f the time, the more obvious support/resistance, the higher the probability and with a 3 month range, there was very little reason to believe we wouldn't see one before any move down could start.
"one of the probabilities based on our concepts from earlier in the week was a head fake above the multi-month range, $1900 (where resistance of the range is) should do it if it happens which usually happens around 80% of the time before a major reversal (in this case with such a large top)."
The point of a head fake move is to change sentiment dramatically, Wall St. doesn't do anything without a reason. For more on Understanding Head Fake moves, these two links are always on the members' site near the top left....
* Understanding the Head-Fake Move Part 1
* Understanding the Head-Fake Move Part 2
Which brings us to our point, when the SPX was in the range, it was about in line with the F_E_D's expected/extrapolated balance sheet at the time of the end of QE3. The head fake move we expected came in to being as this is a general concept that we can expect most of the time and predict pretty far in advance with well formed ranges.
You already saw the 3C charts as well as another money flow indicator I had seen and posted that looked just like 3C's readings during the move above the range as well as the BAC data on Institutional selling and retail buying which was in this morning's post again.
Therefore one must wonder at what point does the market start front running not only the end of QE3, but the rate hikes which have always moved the market down? Supposing we are correct and I believe strongly we are that we are in a head fake move right now and that these moves precede a reversal (to the downside), and with the SPX 25 points above the F_E_D's balance sheet correlation, might this not be the exact spot?
Furthermore, I haven't posted these in a while, but from Capital Context, the ES CONTEXT chart...
This is the current CONTEXT model showing a differential of about 30 points (very close to the F_E_D balance sheet differential) between ES and the model, at the bottom of the post is a description of the model and how it's constructed...
The question is not one of reversion to fair value, the market never responds in moderate ways, it always moves in extremes, even when it's ranging, it's an extreme 3 months. The question really is how badly does the market front run the F_E_D and if this is the head fake move expected before a downside reversal from the range, then are we not at that point in which we back up the truck and load, especially on a short squeeze that has been distributed?
There are a lot of reasons for Institutional money to distribute/sell, but "We think the market is going higher" is not one of them.
Context Model...
"The world has become an increasingly inter-connected place to trade. Whether due to central bank liquidity or the shortening of business cycles, asset-classes tend to behave in highly correlated ways most of the time. The CONTEXT framework attempts to distill the world’s ‘risk’ asset-classes (interest-rates and curves, credit risk, FX carry, commodities, and precious metals) into a single-measure that can be judged against the US equity market in order to comprehend potential mis-pricings (or technical flows and liquidity impacts). Institutional and algorithmic clients tend to use CONTEXT as a confirmation tool for positioning against (or with) a trend. CONTEXT provides a 24-hour-a-day real-time indicator of the world’s risk appetite and whether US equities are over- or under-pricing that risk."
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