The Fed on the Prowl?

On September 10, Market Watch reported that Olivier Blanchard said that in the event of another severe recession

“The best policy would be for the Fed to buy assets with high premiums like stocks….This could do the trick and could work even better than buying long bonds.”

I don’t think we have to wait for another recession. The Fed’s buying signature was all over last night’s price action.

The most active trading periods for the S&P and the Dow are the first 60-90 minutes and the 15:30 to 16:15 (EST) time. It makes sense that range and volume come in as players take a stance at the open, rest at lunch and balance at day’s end. I include 16:00 to 16:15 because of the volume and range before the futures close.

I have noted that whenever there are rumours of Fed intervention, the pattern below emerges.

The vertical lines represent the 9:30 to 16:30 (EST) time zone.

What you’ll notice is there is a vertical rise followed by little activity after around 13:00. This is not the common pattern. As I said, in the past, the detour from the norm suggested Fed buying. If I’m right about the Fed buying, the key will be what happens tonight.

Usually, Fed is said to be concerned about ‘x’.  It buys in and then it rests to see if the stimulus causes buyers to come in. If prices head north, its job is done. But, if the S&P and DJIA head south, we can expect to see buying below last night’s levels.

As I trader, I too will be interested to see if buying pressure comes into the indices. Perhaps we’ll see a breakout of this trading range.