These 3 Measures Forecasted Every Major Downturn Since QT Started: What's Next

Aug. 08, 2019 5:56 PM ETFNGU, IWB, LABD, SOXS, SPY, SQQQ, SSO, TECS, TVIXF, UDOW, UPRO7 Comments


  • Readers were cautioned on July 12th that the S&P 500 was "ominously quiet" with volatility events trending more than 50% below the ten-year average for 2% daily moves.
  • Then, last Thursday, the daily Momentum Gauge signals turned negative for only the third time since the October 2018 correction.
  • Despite a 25 bps cut, the Fed conducted what they say will be the last quantitative tightening event with a $23.18 billion reduction.
  • One estimate calculates that 19% of the S&P 500 gains since 2011 are due entirely to $3.5 trillion in record corporate repurchases.
  • So, what happens post quantitative tightening now that the Fed says it has ended efforts to reduce the balance sheet effective August 1st?
  • This idea was discussed in more depth with members of my private investing community, Value & Momentum Breakouts. Start your free trial today »


To call something hot, you need to see some heat" - Fed Chairman Powell (July 10, 2019)

Fed Chairman Powell gave us a lead-in on July 10th that all was not well. By the FOMC meeting on July 31st, we had our first reversal in Fed fund rate policy in 10 years. Critics suggest the 25 bps cut was too little, too late. My view is that the Fed's asset normalization policy that started in earnest in 2018 and still continues today may be too much, too fast.

So following the Federal Reserve Chairman's testimony before Congress on July 12th, I wrote this cautionary article to readers that the markets were poised to crack.

The Fed talks about a rate cut, while their Quantitative Tightening policy continues down by $687 billion from the peak in the aggressive unwind.

Where is the volatility?

While this fundamental divergence continues, we have only seen FOUR moves of the S&P 500 up or down of more than 2% so far this year. The 2019 S&P 500 volatility is strangely 50% below the average of the last ten years."

Then, the answer arrived last Thursday, on August 1st. For only the third time in the past year, these key signals converged again to alert subscribers of my service and regular readers that another downturn of significance was underway. I will detail the prior events and the best signals I have found to forecast each of these corrections.

The QT/Volatility Relationship

As a long-time VIX volatility trader, some major shifts at the start of 2018 jolted my perspective on a new market paradigm. From 2009, we had three Quantitative Easing (QE) programs that managed to increase liquidity, stabilize market conditions, and bring about the lowest levels of volatility we have seen in a six-year period. Top among them was the entire 2017

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This article was written by

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Revealing the best financial models targeting double digit success

Welcome! I am a Finance PhD, MBA, investment adviser, fraud examiner and certified anti-money laundering specialist with more than 30 years trading and investing stocks and other securities. I'm the founder of Value & Momentum Breakouts.


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