Chart Of The Week

by Allan Harris September 15, 2024

The Big Short

The FOMC will cut rates on Wednesday, either 25 or 50 basis points. This chart highlights what happened in 2007 after the first rate cut after a series of raises, all in advance of the 2008 financial crisis. See: The Big Short.

This is where Mark Twain's oft quoted, "History doesn't repeat, but it often rhymes," seems most relevant, but let's revisit those words from a little more trading point of view, again, quoting Twain:

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"No occurrence is sole and solitary, but is merely a repetition of a thing which has happened before, and perhaps often."

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FOMC Interest Rate Increases

Even as little as a 25 basis point reduction in the Fed Rate will reverse long standing policy of higher interest rates, starting in March 2022, raising through July 23, 2023, holding steady since. This places the fourth quarter of 2024 into the first quarter of 2025 into the crosshairs of 2007-2008 financial meltdown. Whether it starts next week, or next month, or even next year is less important than the probability that it is coming in the days-to-weeks-to-months ahead. That doesn't equate to shorting the market out of the gates on Monday, or Wednesday after the Fed announcement, or anytime for that matter. It does mean to take every one of any forthcoming Sell Signals with an assumption that it is coming at the beginning of an extended decline and to act decisively in implementing a shorting strategy. Should the market not react as expected and continue its upward trajectory, we have calls on our favorite two stocks, TSLA and PLTR, that will continue their ascent. If and when, however, the Trend Models reverse down and patterns confirm intermediate term declines, we will take heed of Twain's admonition, with a repeat in form of the market action of 2008 (as well as 2001-2002), as set out below.

SPY: 2006-2009

Every down red arrow while the Fed is lowering rates should be treated as an entry to the short side.

SPY 2000-2003

Fed late to the rescue...again.