The Federal Reserve increased its balance sheet by $14 Billion this week. June was the month when the Fed was supposed to reduce its balance sheet as a part of quantitative tightening by increasing interest rates and reducing its balance sheet in order to "fight inflation".
There are 400 PhD's at the Federal Reserve and they didn't see inflation coming.
The Fed has supported the market to extreme bubble levels. We don't want the market to crash but the market needs to price naturally without the Federal Reserve presenting a picture that is better than reality. Their policies have not saved us but only delayed us from reality and the truth.
The stock market and economy will do much better in the long run with organic and natural growth. Over the past decade, many companies have been created with a business model that does not include a cost of capital. Throughout history, there has been a cost to capital. Since 2009, the Fed Funds have remained near 0%.
We see "prop up" price action on a daily basis in the stock market which ends up being a continuous denial of truth and price distortion. I believe the Federal Reserves balance sheet has been the biggest fundament factor in the direction of the stock market since 2009.
During the week of May 18-May 25 the balance sheet was reduced by approximately $31 billion. Maybe this is the week the Fed Balance sheet will be reduced.
How does this apply to day trading?
Since April 13th, the peak of the Federal Reserves balance sheet, the two time periods the Federal Reserve has reduced its balance sheet, we saw the market drop.
April 13 - April 27 was a two week time period when the Fed's balance sheet dropped.
May 18 - May 25 was a one week time period when the Fed's balance sheet dropped.
The phrase "Don't Fight the Fed" would imply that you should invest in the stock market when the Federal Reserves monetary policy is easy and that you should sell or even short stocks when the Federal Reserves monetary policy is tight. The perma bulls only see one side of this. The same force that tries to cause the shorts to cover will now cause the longs to sell if the Federal Reserve continues to follow through on a tighter monetary policy.
The Federal Reserve's balance sheet data is delayed and is not real time but the cycle we see in the Fed's balance sheet could be the third Wednesday of the month through the 4th Wednesday. Going forward, it is possible that this could be a monthly cycle for short trades. The sample size since the peak in the Fed's balance sheet is only two. It is a cycle we will be watching and potentially trading.
You can google Fred Fed Balance Sheet to see the Federal Reserves balance sheet.
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