The stock markets have edged higher since early October and now are making new all-time highs. Economic data could look better but the good news is that the deterioration that we saw over the summer is abating. Trade negotiations with China are in flux but both sides are indicating signs of an agreement so there is a case to be made that an economic malaise is not on the horizon. Not to mention that the Fed cut rates three times this year and is buying $60B monthly in T-Bills – a policy change that typically affects the economy with a six month lag. Below is a chart of the Fed’s balance sheet that has started to hook higher on the far-right side of the chart.

I thought it would be a good idea to analyze a longer-term horizon on the S&P 500 index this week. Looking back to the financial crisis, we can see a top in 2007 and a bottom in 2009. We can take this top/bottom and use Fibonacci analysis to see if there is an “echo” or extensions from this very significant place in the long-term charts.
Note: Each bar or candlestick (see definition HERE) in the chart below represents one month of price action.

As you can see, the 161.8% extensions at 2,131 acted as a barrier where the S&P 500 hung around this level for around 21 months. At the time, it appeared a larger top was in place as the Fed was putting a moratorium around increasing its balance sheet. However, the Fed’s forward guidance and promise to maintain the $4T in assets on its balance sheet gave markets enough confidence to breakout from this consolidation period.
Fast forward to today and you can see we have been consolidating under the 261.8% extension for the last 22 months. Again, the markets were justifiably concerned about the Fed’s policy as the interest rate increases in 2018 combined with a reduction in the balance sheet caused stocks to fall 20%. Eventually, the Fed reversed course and so did the S&P 500 as most of 2019 has been a recovery trade to previous highs established in 2018.
The month of November has brought us above the 261.8% extension and a close on November 30th above 3,035 could be the start of something that lasts past the next election cycle. If this assertion is wrong, then a reversal is probably lurking within the next several weeks and we can see which levels in the chart hold as critical support.
Chart of the Week!

Economic & Central Banking Snippets
- Germany narrowly skirted a recession in the third quarter. Gross domestic product increased by an adjusted 0.1% from the previous quarter, following a 0.2% drop in the second. Consumption, construction and exports supported the modest turnaround. The outlook: “There are still very few reasons to be overly cheerful. While a growth crisis still looks unlikely, a longer period of stagnation is still in the cards,” ING’s Carsten Brzeski said. (WSJ)
- At his recent press conference, FOMC Chairman Jay Powell gave cheer to the bulls by saying that in order for the Fed to hike rates again, they’d need to see a “really significant move up in inflation that’s persistent.” Based on the latest CPI reading we appear to be far from any pickup like that, as core inflation actually ticked down sequentially on a year-over-year basis. (Bloomberg)
- China is showing fresh signs of weakness. Readings of economic growth slowed further in October, with disappointing numbers in industrial output, household consumption and fixed-asset investment. Taken together, the figures add to evidence that China’s economy is broadly slowing. (Bloomberg)
Macro Snippets
- Saudi Aramco released the long-awaited prospectus for its initial public offering on Saturday, saying it would offer up to 0.5% of the kingdom’s state-owned oil company for sale to retail investors but disclosing few other details. The offering is tipped to be the biggest IPO ever. (FT)
- Yields on U.S. government bonds have rebounded from near-historic lows hit just two months ago, sending one of the clearest signals yet that investors’ recent recession fears have waned. (WSJ)

- Google is teaming with one of the country’s largest health-care systems on a secret project to collect and crunch the detailed personal health information of millions of Americans across 21 states, according to people familiar with the matter and internal documents. The initiative, code-named “Project Nightingale,” appears to be the largest in a series of efforts by Silicon Valley giants to gain access to personal health data and establish a toehold in the massive health-care industry. The data involved includes lab results, doctor diagnoses and hospitalization records and amounts to a total health history, complete with patient names and dates of birth. (WSJ)
- Alibaba logged more than $38.3 billion of purchases during its Singles’ Day bonanza, exceeding last year’s record after a 24-hour shopping marathon. (Bloomberg)
- China has agreed to lift a more than four-year-old ban on U.S. poultry imports, both governments said, in what a U.S. industry group said could lead to sales of about $2 billion of poultry. American poultry had been banned in China since 2015 following an outbreak of avian influenza. (WSJ)

- Burger King will launch meat-free Rebel Whoppers in over 20 countries across Europe, and Unilever subsidiary The Vegetarian Butcher will provide the patties in what is its first major restaurant deal. The fast-food chain has had tremendous success with its Impossible Whopper in the U.S. and is beating rivals when it comes to meatless options. (Investopedia)
That is all for now until next week’s Market Update. Thank you for being a subscriber!
Regards,
Paul J. McCarthy, III
President – Kisco Capital