Despite the Fed upgrading their outlook for inflation and employment, the monthly QE of $85bn will continue in full. The 'taper touters' are already looking to the next FOMCs of late July and mid Sept, but then, why would the fed ever end QE, which has unquestionably pushed equities higher?
sp'60min
sp'weekly
Summary
Well, that was a particularly fun afternoon. Certainly the 2pm hour was a real mess of small scale price chop, but the downside really solidified in the closing hour. Yet...the VIX only closed flat, and that is one primary reason why I think this is probably a one day anomaly.
Primary trend remains to the upside - not least on the monthly charts.
Rising bond yields don't mean an equity crash
Perhaps the biggest story of the day was the daily close in the 10yr bonds, which closed with a yield of 2.33%, the highest since August 2011.
I've not posted this chart/outlook before, but here is a very broad monthly look back, and forward.
US 10yr bond yield
I've added a very simple extrapolation of the 2003-2006 MACD cycle to the recent low from summer 2012. No doubt some will roll their eyes at that, but regardless, the point is clear, stocks rallied from 2003>2007..whilst yields went broadly UP.
Rising bond yields do NOT equate to collapsing equities. Indeed, as many have recognised, the housing market will probably pick up as mortgage rates increase, as those still looking to buy, will start to realise that rates won't stay this low forever.
From a grand cycle perspective, bond yields maxing out in late 2015 would be rather appropriate, before the next major equity down cycle. Of course, that is a very long way out, and despite having a deep interest in the bigger picture...I will still trade things...one day...at a time.
Looking ahead
There is an array of econ-data tomorrow. We have the usual weekly jobless data in pre-market. At 10am, there are leading indicators, housing data, and Phil' fed survey.
I'm guessing the market will take some of that data as 'green shoots', and will rally on it.
*I will look to go heavy LONG in the early morning, but will probably exit for a day-trade - if significant gains after a few hours. Until we take out the 1687 high, I am somewhat cautious about the mid-term outlook.
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UPDATE (as at 10.30pm EST)
Futures are sp -10pts, which would be a clear break of trend/channel rising support of sp'1620.
sp'weekly7 - the 'high is in' scenario.
Natural downside target would be the lower weekly bollinger, currently @ 1488 (but rising). Without question, the last line in the sand is 1598, if not the more recent 1608. By mid-July, we'd be looking for 1550/30 - which interestingly, is where we floored in mid April.
So, lets see where we open, and what sort of bounce we get..as no doubt we will get one, probably starting no later than 11am.
Goodnight from London
