Wednesday, 18 September 2013

Awaiting the Bernanke

The US and World capital markets are cautiously awaiting the decision and words of Bernanke. Despite a potential 'sell the news' event, with the Nasdaq and R2K already breaking new highs, equities are more likely than not, to continue battling higher.




So, the sp' is a mere 5pts shy of breaking new highs. The VIX daily MACD (blue bar histogram) cycle is starting to tick higher, but there is nothing conclusive yet. Bears need a daily close in the 15s to have any confidence/hope of equity downside.

Default trend remains upward

Even if the market fails to break new index highs tomorrow, it is going to take a sizable drop (across a few days) just to offer an initial turn. It is a guess, but even a break under the weekly 10MA of 1678 will barely be enough to turn the current weekly candle blue.

All those seeking major downside should be desperate for a weekly close under last weeks low of 1656. That is almost 50pts lower, although we saw two similar sized declines in August - both taking two days.

sp'weekly8 - mid term bullish outlook

Looking FOMC day

There is 'Housing Starts' data in early morning, but the market will have little concern for that.

The FOMC are set to announce at 2pm, with the Bernanke due for a press conference around 2.30pm. As many recognise, the markets reaction to the press conf' will probably be more important than the initial announcement.

Best guess - QE will be reduced by $15bn. Whether its 5/10 MBS/POMO or 10/5bn MBS/POMO, is entirely irrelevant. A monthly QE of $70bn is still a huge annual amount of $0.84trn. For the economic doomers out there, just consider that amounts to around 5% of GDP.  It could be argued that minus QE, annual GDP is actually (2%, -5%).... giving a deeply recessionary -3%.

Trading plan

Frankly, I'm not likely to get involved tomorrow. Trading on a Fed day is generally not a good idea. The price action could be pretty unstable once the announcement is made. Even then, as we've seen a number of times this year, the 'real reaction' won't likely be clear until the Bernanke has completed his press conference..and by that time, it'll be 3.30pm or so.

Further, if we break >sp'1710 at ANY time, I'd absolutely rule out going short in the immediate term. The fact the Nasdaq and R2K are already at new highs bodes VERY badly for equity bears tomorrow.

*I will note, Oil looks especially weak on the daily chart..along with the precious metals. If we do see downside into the Wednesday close, I'd look for commodities to be especially weak.

A pissed permabear

"What makes it hard is not that you had it bad, it is that you are so pissed that so many others had it good"

...and thats all I've got to say about that.

Goodnight from London