The Fed Will Buy What I Buy

2020-06-10 | TG Watkins

“The Fed will buy what I buy” is a phrase I have been hearing. Essentially it means that the Fed is in the business of backstopping the market and making sure it doesn’t go down at any cost. That cost is in the form of nearly 0% interest rates, digitally printing money, and buying corporate bonds.

On top of all that, a massive amount of government stimulus money to individuals and families has found its way directly into the market via a record number of newly opened brokerage accounts. We are also seeing an unprecedented level of single contract call buying which implies new or small retail traders dipping their toes in and buying just one contract.

The Fed (Jerome Powell) has said they will do whatever it takes to keep things going and that they have more tricks up their sleeve. The message has been clear: don’t bet against the market.

Yet….

With the Fed pumping the market and the same with quarantined investors, there have been some massive moves, but it hasn’t been that easy. When price strays too far away from support we get a smacking and price is dropped swiftly back down, only to find itself chugging back up. I have been needing to adapt to this new environment and figure out the new tricks to play by. Fortunately, my method has been able to flex to the new paradigm and I have been able to succinctly demonstrate it to our subscribers.

We all keep waiting for the next shoe to drop, or the party to suddenly and spectacularly end; All of the indicators say we are pushing our luck. But there is no arguing with the charts and so we continue to ride until the wheels fall off and someone realizes that a tulip isn’t worth $2,000. If the Fed wants money to go into the economy, we will oblige, while keeping our trailing stops in place. I am grateful for the trend that is in place, because when things change and the market has to reconfigure, there will be chop and we will most likely need to adapt again.