Will Fed’s Heavy Foot Burst Market Bubble?

2020-05-22 | Simpler Trading Team

Is the Fed-infused bullish swing real, or a bubble about to burst?

The Federal Reserve has heavily impacted market movement since the 2008 financial crisis, and its “foot on the gas” influence continues.

Since 2008-2009 when the Fed had a balance sheet of just over $2 trillion (yes, trillion), it has now ballooned to almost $7 trillion. Almost $3 trillion of that debt load has been pushed into the economy this year — the past three months.

Can this Fed-protected market “bubble” be sustained as the economy changes, possibly struggling for years, due to the pandemic?

The Fed has pledged to do anything necessary to keep the economy and the markets moving forward. Many stock prices are pushing higher as if it’s a bull market with no end in sight. In reality the economy shows these same stocks should, technically, be faltering.

Such a pledge shows the Fed’s willingness to print money “digitally” and push it into the economy by the trillions. It has created an irrational environment in the markets.

How does this affect traders?

Trades can be more complicated to set up in this environment, but can pay off if managed properly.

Focus on structuring trades that are bullish — matching the Fed-infused market — but have protection against your direction. Butterflies are a good option here.

These types of trades are less concerned with direction, and the structure can work no matter where the market is moving.

This is where a trading plan focused on charts — not exhaustive research or new — can identify high-probability trades.

Keep in mind which is more important: knowing a lot about the market and what’s happening, or finding opportunities to make money?

It’s a fascinating market, for sure, so focus on high-probability opportunities that you can identify in the charts.

Enjoy the weekend, take time to recharge in life and your focus on the markets.

We Saw: Trillions of government dollars hitting markets — 

  • China forcing its rule on outside markets
  • U.S. workers calling for freedom to return to work
  • Stocks looking to finish week strong despite stumbles

We’re Watching: … Time to refresh, recharge over holiday —

  • Not direction, but high-probability setups
  • Impact of Fed’s trillion-dollar infusions
  • Oil prices pull back, face hurricane season

Does it make sense to “see” price moves before they happen? Learn about catching “pops and drops” in a volatile market.