Fed Balance Sheet, Biggest Decline since September 2012

I like to watch the Fed Balance sheet numbers because they are more important and say more than the public talk of the Fed Governors.  The measure that I prefer, is the six week change in the Balance Sheet, it is long enough to filter out the little wiggles, yet short enough to provide early indications of what is happening.  In the latest numbers provided, for the week of February 15, 2015, we see that the six week change shows the biggest decline for a six week period since the week before the FED had a panic attack and started QE 3 in September 2012.  For what it is worth the largest six week increase in the Balance sheet since the start of QE 3 was recorded on May 29, 2013.  For those of you who follow the standard MACD momentum indicator, that was the time of the peak number in the S&P momentum since the March 2009 market bottom.

And not to forget oil, if you go back to our February 10th comments you will see the argument, that we believe that the oil infrastructure ETF’s, like XLE are about to lose some of their premium to basic oil represented by the ETF USO.  That break away is getting closer.  A daily close of  XLE under 78.13 would be the first indication that the move is getting underway.  In fact a spread position of long USO and short XLE makes a lot of technical sense.

And one more comment, the low level of the volatility measures at this dangerous swing point in the macro cycles is astounding.  It is like there is absolutely no fear in the marketplace.