Instant Intermarket Money Flow Reaction to Federal Reserve

We like to study money flow from a cross-market standpoint to pinpoint where money is entering and where money is leaving.

Often, large events such as the Federal Reserve policy announcement – no taper (QE3 continues without changes) – is a catalyst for rapid money flow shifts across all markets simultaneously.

Let’s review the instant reaction, state the typical “QE3 Thesis,” and view the sudden yet somewhat predictable reversals based on the outcome (no taper) we saw today.

Though we’ve seen Gold diverge with Stocks and Oil since November 2012, the typical “QE” or Quantitative Easing Money Flow thesis holds that additional stimulus from the Federal Reserve historically has boosted (elevated) stock prices, gold prices, and oil prices at the expense of a declining US Dollar Index.

Today’s sudden “No Taper” announcement returned the markets to the historical “QE Thesis” Money Flow or sudden “Risk-On” Reversal.

After the announcement, we saw a sharp and sustained spike – Money Flow – into US Equities, Gold, and Crude Oil (just to focus on the four markets not including Treasuries).

At the same time, we saw a breakdown and collapse in the US Dollar Index under the critical 81 support level.

The 30-min Cross-Market Charts above show not just the instant reaction, but the ongoing trends going into today’s policy announcement.

Money consistently flowed INTO Stocks but OUT OF Oil and Gold (partially in response to the ‘cooling off’ of tensions in Syria which helped spike Gold and Oil prices temporarily).

If we stretch the perspective back, we can see a broader picture of short-term Money Flow:

The hourly charts above begin near early August and continue to September 18th’s Fed Policy Announcement.

The “Syria Trade” resulted in money flow out of stocks and into Gold and Oil as tensions escalated, and then reversed course (money flow out of gold and oil and into stocks) as it became clear the United States would not strike Syria (tensions would not escalate).

Now, the shift in money flow resorts back temporarily to the “QE” or “Quantitative Easing” historical relationship – at least immediately after the announcement – where stocks, oil, and gold traded sharply higher together at the expense of the US Dollar Index.

Continue monitoring these sudden reversals in the short-term trends, particularly with the breakout to all-time highs in the SP500.

For prior update posts on this topic, see the following:

“Viewing the Recent Shift in Money Flow Trends” (June 2013)

“Long-Term Intermarket Money Flow to Start June 2013”

“Insights from Recent Sector Rotation Charting” (June 2013)

“A Check-Up on SP500 Market Internals and Structure after Sell-off” (Feb. 2013)

“A Quick Pre-Fed Check-Up on Market Internals” (May 2013)

“Cross-Market Currents after Fed Day” (April 2012)

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Corey Rosenbloom, CMT
Afraid to Trade.com

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