The Gilmo Report

December 22, 2019

December 20, 2019

The market completed eight-straight up days in a row on Friday in something I would call more of a Santa Claus Melt-Up than a Santa Claus Rally. What could be causing such unabashed ebullience? Many attribute the rally to the Phase One trade deal, but as I see it the deal is mostly a nothing-burger, although some see it as a truce more than anything else.

I tend to think that the market move is a function of the Fed’s latest round of QE. The chart below, taken from the St. Louis Fed’s website, shows the sudden and rapid increase in the Fed balance sheet that began in early September.



The NASDAQ Composite Index responded in early September with an initial rally, then it rolled over to test the early-August lows. From there, as the Fed further opened up the spigot, the market indexes took off. On Friday, the NASDAQ posted its eighth-straight up day in a narrow range on heavy options expiration volume. The action has the look of high-volume churning, and we’ll see if this has any significance as we move through the Christmas Holiday week.

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