The trading week began with a bullish bang! Well, at least on the opening bell. As soon as the bulls halted their attempts negative NYSE tick crept in, bringing prices near the 1360 mark on the S&P 500 and held up. With the lack of significant NYSE tick, the 1360 price area posed a crucial point as to whether the overbought environment would sustain or deplete. The FOMC meeting was hanging over both the bull’s and the bear’s heads. In the bonds, neither the 3yr. Note Auction, nor the Treasury Budget spurred much buying that stuck. I looked for more clarity after the FOMC meeting and the bond auctions concluded. I am intrigued and curious regarding the Federal Reserve’s approach to handling the monetary situations. Tuesday’s announcement revealed glaring holes in their judgment. If a development appears contrary to their viewpoint, they get defensive. And this announcement was no exception, as they called inflation a temporary event. Their credibility is slowly, but surely dissipating. I expect it to become more evident in the following months to come. Their actions may represent the beginning of a change regarding Fed policy. It will eventually factor into the stock market as it has all year. The Fed says that it is still maintaining its Operation Twist, but the affects of their intervention is not only minimal, they are an indirect correlation to what is happening regarding interest rates. Has Bernanke lost his power?
Very rarely do you see a day where the bonds are crucified and equities do not benefit in a gargantuan way, but it happened during Wednesday’s trading. Bernanke and his crew reiterate they are buying longer-term treasuries in Operation Twist, but the bonds stayed in a debacle from the previous day. Maybe Benny and the boys got their words twisted because I did not see very heavy buying.
Trading on Thursday turned out to be a big day. Apple’s stock nipped $600 a share briefly for the first time and the S&P breached 1400 for the first time since June 2008. Overnight bonds journeyed to the 135 ½ price area. It appears that a wholesale dumping has materialized. I watched the bonds volume closely as Wednesday was one of the highest readings of the year at over 550,000 contracts. The heavy volume coupled with the sharp movements is what you see at capitulations. The bonds had many news items to absorb: Jobless Claims, Producer Price Index, Empire State Mfg Survey and Philadelphia Fed Survey Thursday morning.
I figured the media would take it as a grand headline story if the S&P closed above 1400, which it did. The futures had been knocking on the door at 1400 lately, so it was only a matter of time. A good trading opportunity could result from it, as it should create volatility. My key sentiment indicator is now into the danger zone. Only twice in the past 12 years has this occurred. The first was March of 2000. The second was June of 2008.
The Expiration Fridays have almost become a nonevent. There was an airtight S&P intraday range of only 6 points. The thrusts upward and downward were very slow and lethargic. The advent of total computer control of market actions has negated portfolio adjustments. Rumors circulating about the release of oil reserves put pressure on crude-oil prices. Oil and the U.S. Dollar stumbled a tad for the week, but the stock market remained manic as global stocks advanced from the optimistic U.S. economic data. The S&P ended up closing around 1404 and stayed in the green, which is very suitable for St. Patrick’s Day. The new high extended the bullish super rally to the longest period of time without a 50-point decline since 2008. Back when manipulation was at a zenith.