Early Monday morning the stock market cascaded downward like a waterfall. As the day progressed it started to stabilize. Midday saw the market try to regain to the plus side, which generated some high plus NYSE tick. However, without Bernanke and the Fed, this market definitely still has problems. On a positive note, our advisory trade profit objective was reached! The stock market is showing swings demonstrating that the convictions are short lived. The swings were wide but the net change is very minimal. This market was frustrating to the ramped bulls and the ramped bears as it awaited the Fed meeting. The bonds once again hit a cement ceiling at 150 ¼ and got a concussion. The overall situation showed that even with the Feds policies, the bonds are having trouble maintaining. The bubble will not have reversed until we see a full 10-point pullback, but little subtleties are starting to surface, showing pin-pricks in the bubble. Tuesday was the first day of the FOMC meeting and there are always some games that the Fed plays in this situation. The technicals are not sufficiently oversold for a sustaining rally, but if the Fed is accommodating a manufactured rally can be produced. The bonds did not have the pull back that we should have seen corresponding indirectly to the S&P rally. Ordinarily we would have expected the bonds to make a lower low below 146 ½ but it didn’t happen. The bonds are being held from declining in an ordinary fashion. The big question is why?
Many times the reaction to the Fed announcements creates spike moves in markets. Tuesday’s S&P 500 high was 1357. Therefore, we have two price spike areas, one before the news and one after the news that is very close together. Failure to exceed the 1357 means the news did not energize the bulls. Operation Twist was extended until year end. However, I am wondering if the effectiveness of the program will be able to ignite anyone to action anymore. The amount committed is less than previous and the bond market is still in an incredible bubble stage. Keep in mind the 152 ½ is a primary resistance with 150 ¼ as a secondary resistance.
I want to point out that it is always important to look at the big picture for the intermediate term determinations. The fact that oil has been in a dismal selling pattern, driving prices down, now more than $30 per barrel on this move alone. I am pointing this out as it denotes two problems for the stock market. First and most obvious is that the energy stocks are going to have a bearish reaction and have been decimated accordingly. Secondly, the fact that lack of usage of energy is retreating generally is indicative of slowing economics throughout the entire world. This cannot be ignored. The bonds displayed heaviness in Thursday’s rally as they were very tepid given the decline in the S&P futures. The fact that the S&P has reversed this significantly while the bonds are unable to even reach 150 ¼ tells me that the bonds are a lead ingot and too heavy to lift.
This week had the Federal Reserve extend their accommodative posture. However, the downside was the path following the FOMC announcement. Therefore, this stock market is highly vulnerable, but don’t forget the Fed still has money to evoke a bullish rally. In addition, all indicators are showing signs of a very weak bond market.