Don't Fight the Trend

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If I could impart one bit of wisdom to my readers about today’s market it is this: "Don't fight the Fed."

Unbeknownst to many investors, that saying is a two-way street. It is easy for investors to grasp the advice when the Fed provides liquidity. During those periods of easy monetary policy, markets grind higher daily. Volatility is low, meaningful declines are infrequent, and drawdowns tend to be shallow.

But when the Fed raises rates and reduces liquidity, the trend is often an investor's enemy. In this scenario, Don't fight the Fed is a warning to take a more conservative stance.

Given the Fed's hawkish monetary policy agenda and its effect on asset prices, I thought it might be helpful to share my thoughts on Fed-based trend analysis.

The Fed trend is your friend

The Federal Reserve provides market liquidity directly and indirectly.