Distorted patterns lead to severe corrections. When the stock market goes up in a straight line it is always risky to go long. Markets pulled back yesterday but today they are once again on the rise following an upbeat statement from Apple (NASDAQ:AAPL). Apple’s earnings report was disappointing, sales of iPhone slumped 17% last quarter as weak demand in China took a toll.
However the markets started to rise before the US close after Trump said the Fed should lower interest rate and do quantitative easing again to boost the economy and the stock market. Will the Fed do as it is told? Tonight the Fed will release its latest FOMC statement at 7pm, there is also an interest rate decision. People don’t expect a change in interest rates, the attention will be on the statement, if it’s dovish markets will rally, if it’s hawkish, markets will fall.
Trump is a real distraction because he keeps making statements that influence the markets to go up. When he makes this kind of statement at the top it’s hard to go short. He distracts people from going short. It is fine to distract people after corrective wave because it is time to go long, the problem is that there is no corrective wave in the S&P 500, the S&P keeps going up because there is always something bullish coming from Trump, the Fed or earnings.
We don’t see the natural pattern in the S&P, we see it in the FTSE 100 but not in the S&P. The FTSE is moving up with decent pullbacks along the way, which is what a normal pattern is, we can go long after these pullbacks. The FTSE is easier to trade. In the US it’s a manipulated market and we know from past experience, each time the market has been manipulated, it is followed by a crash or some kind of severe correction. I expect this correction to happen soon.
My view is that if Trump says the Fed should do something, the Fed will probably do it. Trump is not a conventional president, his ex-lawyer even said he is a conman. The president should not interfere with the Fed’s decisions, but Trump is different, he is manipulating the stock market, and he would manipulate the economy if he could.
Technically a correction is due, many indicators are overbought. The next major move is down. But we have the FOMC statement tonight, any mention of quantitative easing or lower rates will rally the markets. Take this into account if you are thinking of going short.