“Don’t fight the Fed” is NOT the correct quote.
If someone tells you that, they’re either really confused or just lying to you.
The quote is, “Rule #1: The Trend is Your Friend. Don’t fight the tape.”
This comes from Marty Zweig’s Investing Rules in April of 1990.
If you’re going to quote a legend, at least get it right.
You see, way down his list, you’ll find “Rule #6: Don’t fight the fed (less valid than Rule #1).”
Marty shared it during a monthly meeting hosted by The Market Technicians Association (now known as the CMT Association).
“Don’t Fight the Tape”
Here’s a copy of what that looked like 35 years ago:
There it is, straight from the man himself.
So, you tell me, Rule #1?
Or Rule #6, which literally comes with a Barry Bonds asterisk?
The saying is “Don’t fight the tape.”
The Fed stuff is way down the list, for good reason.
Marty was right.
The Fed Does What Bonds Tell It To Do
It’s funny.
Interest rates have gone straight up ever since the Fed lowered interest rates in September…
The market is forward-looking. You’re seeing it here.
I’ll repeat: Interest rates have gone straight up ever since the Fed started lowering interest rates.
That’s how this works.
But here’s the thing.
We’re seeing quite the shift in positioning.
We’re seeing commercial hedgers (the smart money) buying U.S. Treasury bonds very aggressively.
This behavior suggests interest rates are going lower.
Meanwhile, the U.S. Dollar has gotten smoked. Rates usually follow the dollar.
Look at this relationship between the U.S. Dollar Index (DXY) and the Cboe 10-Year U.S. Treasury Index (TNX):
They look exactly the same… until recently.
Notice how the DXY has gotten smoked – daring rates to follow it lower.
If commercial hedgers are right about rates falling and the dollar is right that rates are going to fall, the Fed will do whatever the bond market tells it to do.
And, oh, by the way, commercial hedgers have been buying Bitcoin very aggressively.
And this morning it’s up and pushing $100,000.
In the same vein as hedgers buying bonds, telling the Fed what to do. They’re also buying BTC, at extremes, most importantly.
That’s how this works.
The bond market is the captain now… and Bitcoin.
Stay sharp,
JC Parets, CMT
Founder, TrendLabs