March 12, 2020
By Mish Schneider
Yet, that is not the topic for today.
Rather, this post is about the FED and their attempt to calm the markets.
Less talky and more actiony than Trump, in essence, the FED believes the same thing.
The ETF LQD Fund’s stated objective is "to track the investment results of an index composed of U.S. dollar-denominated, investment grade corporate bonds".
It’s a “risk-on” investment strategy in what is considered to be the safest fixed-income sectors.
This fund gives you exposure to the top corporations that typically do well in a lower interest-rate environment.
LQD’s top 10 holdings include BlackRock Cash Funds Treasury SL Agency Shares, GE Capital Funding Company, Anheuser-Busch Cos, CVS Health Corps, Goldman Sachs, Verizon, and Abbvie Inc.
I bring this to you today as a rumor circulated that the Fed bought into this fund to inject liquidity into the market and economy.
In other words, the FED, assuming low rates or even negative rates are here to stay, bought LQDs to help alleviate the crisis we are currently in.
If the FED did indeed buy investment grade bonds, their purchases were met by very eager sellers.
I imagine the FED is in it for the long haul, anticipating that once the virus becomes more manageable, these bonds are the way to go.
But, is this the final chapter for the Fed to be careful what they wish for?
The FED also announced $500 billion in 1-month and 3-month repos.
They flooded the market with liquidity. This repo will continue every week for the rest of the month.
Their balance sheet keeps growing.
Can this action along with the real chance the Fed’s meeting on the 18th results in zero interest rates, investors are wondering if this will help?
Looking at the weekly chart of LQD, the immediate response is no.
Furthermore, as one who anticipates the even better chance that these repos, purchases of corporate debt, the diminishing supply chain and zero percent interest rates create a stagflationary environment, I feel like today my pawn on the chess board got closer to declaring “Checkmate.”
Russell 2000 (IWM) 112.05 today’s low. 124.27 a gap to fill
Dow (DIA) 208 the 80-month moving average support
Nasdaq (QQQ) So much better shape than the others but still not looking healthy
KRE (Regional Banks) It starts with a close over 36.42.
SMH (Semiconductors) 100 area 2019 low-120 resistance
IYT (Transportation) 114.91 2016 low
IBB (Biotechnology) 100.56 the 80-month MA pivotal
XRT (Retail) Below the 2016 low-35 resistance
Every day you'll be prepared to trade with: