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Sept. 12, 2019, 3:23 p.m. EDT

The ECB’s new stimulus helps Trump’s bid against the Federal Reserve

As the European Central Bank adds more stimulus, the pressure is on the Federal Reserve to do the same

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By Nigam Arora


Getty Images
U.S. President Donald Trump and ECB President Mario Draghi

President Trump has called for the Federal Reserve’s “Boneheads” to cut interest rates. Now Trump has more ammunition against the Fed from the new plans of “Super Mario” — European Central Bank President Mario Draghi.

Draghi is known as Super Mario for adopting extremely stimulative monetary policy to pull Europe out of pending fiscal disaster. On Thursday the ECB announced another rate cut and more bond buying, a move that pushed up U.S. stocks.

In addition, there are rumors of an interim trade deal with China — but with trade deal news, never trust the first reports. Regardless, Trump is determined to run up the stock market. Please see “Trump’s China gambit is working for now — this chart tells the story” and “Trump claims the stock market would be higher if he hadn’t confronted China — is he right?

Let’s pull this news together with the help of two charts.

Charts

Please click here for an annotated chart of long bond ETF /zigman2/quotes/206026314/composite TLT -0.55% .

Please click here for an annotated chart of S&P 500 ETF /zigman2/quotes/209901640/composite SPY +0.91% , which mirrors the S&P 500 Index /zigman2/quotes/210599714/realtime SPX +0.91% . For the sake of transparency, this chart was previously published and no changes have been made.

Note the following:

• The first chart shows that bonds traced a parabolic move on recession fears.

• The first chart shows that The Arora Report gave a sell signal on TLT at a time when almost everybody was expecting it to go higher. With the benefit of hindsight, The Arora Report’s signal to short-sell bonds has proven spot-on. At the same time, a signal was given to buy inverse bond ETF /zigman2/quotes/200202000/composite TBT +1.18% for those who could not short-sell. Both trades are now nicely profitable.

• The first chart shows that at a time when bonds were rocketing, the relative strength index (RSI) was showing divergences.

• The second chart shows a megaphone pattern. At the time the chart was first published, many gurus and media were using this chart to proclaim that the stock market was about to fall out of bed. The Arora Report took the opposite position, saying the upside move was possible. That call has turned out to be correct. Please see “A ‘megaphone’ pattern in the stock market sounds scary — but there’s no need for dread.”

• Gold ETF /zigman2/quotes/200593176/composite GLD -0.99% , silver ETF /zigman2/quotes/205744453/composite SLV -2.33% and gold miner ETF /zigman2/quotes/206399889/composite GDX -2.35% are moving higher on the ECB news.

• Note that the stock market is now overbought in the short term. Overbought markets tend to be vulnerable.

• Apple /zigman2/quotes/202934861/composite AAPL +1.93% stock has moved up after the introduction of new iPhones and a lower-than-anticipated price on its streaming service.

/zigman2/quotes/206026314/composite
US : U.S.: Nasdaq
$ 138.35
-0.77 -0.55%
Volume: 7.93M
Dec. 6, 2019 4:00p
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/zigman2/quotes/209901640/composite
US : U.S.: NYSE Arca
$ 314.87
+2.85 +0.91%
Volume: 48.96M
Dec. 6, 2019 8:00p
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/zigman2/quotes/210599714/realtime
US : S&P US
3,145.91
+28.48 +0.91%
Volume: 1.70B
Dec. 6, 2019 5:07p
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/zigman2/quotes/200202000/composite
US : U.S.: NYSE Arca
$ 25.72
+0.30 +1.18%
Volume: 1.17M
Dec. 6, 2019 8:00p
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/zigman2/quotes/200593176/composite
US : U.S.: NYSE Arca
$ 137.62
-1.38 -0.99%
Volume: 8.75M
Dec. 6, 2019 8:00p
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/zigman2/quotes/205744453/composite
US : U.S.: NYSE Arca
$ 15.48
-0.37 -2.33%
Volume: 19.26M
Dec. 6, 2019 8:00p
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/zigman2/quotes/206399889/composite
US : U.S.: NYSE Arca
$ 26.97
-0.65 -2.35%
Volume: 75.30M
Dec. 6, 2019 8:00p
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/zigman2/quotes/202934861/composite
US : U.S.: Nasdaq
$ 270.71
+5.13 +1.93%
Volume: 26.55M
Dec. 6, 2019 4:00p
P/E Ratio
22.84
Dividend Yield
1.14%
Market Cap
$1202.84 billion
Rev. per Employee
$1.98M
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