Birchtree
TSP Talk Royalty
- Reaction score
- 143
Re: Birchtree's account talk
From Mary Ann Bartels - Technical Research Analyst - MLPF&S 11/2
"The major indexes have the potential to exceed their October highs in the coming weeks. That sais, those highs generated breadth, volume, and momentum divergences when compared to the July highs. It will be important to monitor a coming rally to see whether it is sustainable or it generates even more divergences as a part of a broader top formation. The equity market has responded positively to two consecutive cuts in thr discount rate as long ago as 1914 (the "two tumbles and a jump" rule of thumb). On average, the market has rallied more than 30% within 12 months of the second cut. The last signal was on 18 September.
Hedge funds, money growth, cash levels are all showing bullish signs. Hedge funds remain a major source of liquidity; they have reduced equity exposure and remain short the market. Money growth is robust; MZM is growing 12% year to year and cash levels are at record highs.
The "two tumbles and a jumnp" rule, coined by Norman Fosback, has had an excellent record of forecasting significant market rallies, although it has not worked well since 2000. Briefly stated, the rule is that when the Federal Reserve lowers one of the following key monetary policy variables (the discount rate, reserve requirements, or margin requirements) twice, the market is set for a jump up in price.
The indicator gave seventeen signals and all produced gains from 1914 to 1981. The record remained positive in the 1990s, although more rate cuts than two were needed in 1994. From 2000 on, the indicator has been less effective in the only easing cycle we have seen; the Fed cut rates several times in 2001-02 before the market responded. It also is important to note that the Fed has shifted its emphasis from the discount rate to the Fed funds rate.
The most important observation is that more than one cut in rates is needed to cause the "jump" in prices, which gives the market a sense that we have entered an easing cycle. While we previously had two cuts in the discount rate, but only been one cut in the perhaps more important Fed funds rate, the Fed's 31 October easing was the fund rate's second "tumble"."
From Mary Ann Bartels - Technical Research Analyst - MLPF&S 11/2
"The major indexes have the potential to exceed their October highs in the coming weeks. That sais, those highs generated breadth, volume, and momentum divergences when compared to the July highs. It will be important to monitor a coming rally to see whether it is sustainable or it generates even more divergences as a part of a broader top formation. The equity market has responded positively to two consecutive cuts in thr discount rate as long ago as 1914 (the "two tumbles and a jump" rule of thumb). On average, the market has rallied more than 30% within 12 months of the second cut. The last signal was on 18 September.
Hedge funds, money growth, cash levels are all showing bullish signs. Hedge funds remain a major source of liquidity; they have reduced equity exposure and remain short the market. Money growth is robust; MZM is growing 12% year to year and cash levels are at record highs.
The "two tumbles and a jumnp" rule, coined by Norman Fosback, has had an excellent record of forecasting significant market rallies, although it has not worked well since 2000. Briefly stated, the rule is that when the Federal Reserve lowers one of the following key monetary policy variables (the discount rate, reserve requirements, or margin requirements) twice, the market is set for a jump up in price.
The indicator gave seventeen signals and all produced gains from 1914 to 1981. The record remained positive in the 1990s, although more rate cuts than two were needed in 1994. From 2000 on, the indicator has been less effective in the only easing cycle we have seen; the Fed cut rates several times in 2001-02 before the market responded. It also is important to note that the Fed has shifted its emphasis from the discount rate to the Fed funds rate.
The most important observation is that more than one cut in rates is needed to cause the "jump" in prices, which gives the market a sense that we have entered an easing cycle. While we previously had two cuts in the discount rate, but only been one cut in the perhaps more important Fed funds rate, the Fed's 31 October easing was the fund rate's second "tumble"."
Best of luck!
