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Just to stay consistent with my posts prior to my Germany trip, I've put up a follow-on SPY chart that I'll be referring to as I lay things out.
1. Interesting FOMC reaction yesterday to say the least. Not much was really said...i.e. no QE2 announcement, and no other really unexpected news, but the dollar started getting pounded almost immediately and the drubbing has continued through the overnight session into today - and this is across all currencies vs. the dollar. Strange. Sure the Fed said that they are prepared to provide additional support (QE) if needed, but they've been saying that for months now, so why did the dollar suddenly plunge across the board? Not that I think the US dollar is anything to write home about these days...I just find it strange. As a result, Gold has continued its climb and is now flirting with $1300.
2. So how does that leave things for the markets now? Let's start with the bearish case.
- We saw a sell signal in the VIX a few weeks ago that is still active. Click [here] if you need a refresher.
- Though we saw a breakout above the June highs on Monday, as of yet, we haven't seen much follow through, and the volume has still been pretty miserable...on par with summer volume.
- The Stochastic is showing us as being over-bought almost the entire month of September and due for a correction.
- Though we've seen some "preliminary" signs that some economic indicators have been improving recently, some of the biggies like the Philly Fed and Empire Manufacturing Index have shown continued month on month decreases, and in the Fed's comments yesterday, they too admit that any improvements we're seeing are coming much slower than expected, and marginal at best.
On the bullish side:
- We did finally break out of the multi-month range to the upside. If the break out is for real, we could conceivably test S&P 1200 again this year.
- As I've posted several times in the recent weeks, we are in the midst of QE-Lite, with Fed POMOs buying up USTs and providing primary dealers with new billions with which to ramp the market. Click [here] and [here] if you need a review.
- We are seeing some technical symbols (see above chart) that seem to be confirming this move. Though volume is low, at least it has been increasing, and we're also seeing the MACD putting in a new relative high confirming the new price high vs. the June highs. While the Stochastic shows over-bought, keep in mind that we can stay in an over-bought condition for a long time while price continues to rise - see Feb - April in the above chart.
- Mid-term elections coming in November.....a crash now wouldn't look good for the current administration.
So that's how I see things in a nutshell. Overall, I have to admit that my longer term bias is still bearish, but I am going to wait and see how things play out over the next few days before getting into any more swings. A break of S&P 1130 to the downside would prompt me to revisit a short position, and if we can get above 1155, I may get long (for the short term). Don't forget, today is POMO Wednesday with $3 - $5 billion teed up to enter the markets after 11:00 AM EST.
Good luck trading.
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