I have noticed something about this rally off the crash low. It has a rhyme to it. I remember thinking to myself during the crash, and hearing other say, “It feels like the entire 2008 financial crisis is condensed into one month.”
We are seeing the something similar transpire with the bullish move off the crash low. The Fed is using the same playbook that launched the QE bull market, but at an accelerated pace.
First, let’s take a look at a chart of the history of QE that Tom McClellan posted to his Twitter feed on April 5th. You can see from the chart that the stock market nicely traced the path of QE up until 2017. Much of what transpired after 2017 was retraced during the crash.
What I will point your eye towards though is the first couple years after QE began. QE1 began with a steep ascent, and then as the Fed began to pair back its purchases, we got the flash crash. After the 2010 selloff, the Fed start QE2, and the market resumed its advance until the Fed ended QE2. This gave us the 2011 selloff. The same can be seen with QE3.
So what have a noticed? I’ve noticed that the stock market is thus far following a similar dance step to 2009-2010, but at about a 1/9th time scale. I’ll show you what I mean.
The chart above shows the rebound of 2009-2011 that followed the financial crisis. Highlighted in the green boxes, you can see the three noticeable bullish thrusts that occurred as QE1 took hold in the markets.
Are we seeing something similar today? The Fed has been quietly tapering the pace of their QE4 purchases. As I’m typing this on Tuesday morning, the /ES is up another 35 points in the pre-market. The chart as of Monday’s close looked like this.
See any similarities? I would contend from an analog standpoint that we are approaching the “May 2010 top” today or tomorrow.
Does a selloff at the end of April into the first week of May make sense from other perspectives? Let’s take a look at my chart of SPX below. When the bullish move off the crash low started, it began from a historic oversold condition. That is no longer the case. A large upward move in today’s session will see us test monthly SD2. It will also see us testing numerous monthly POC levels that offer an enormous weight of overhead supply as SPX tests them for the first time.
I do remember what happened in May of 2010, and I do believe there is a good chance we could see a similar selloff in the days ahead. I’ll leave you with the below video from our friends at CNBC. For all the talking they did that day, they could have just said one word…