It is important to note that the internals of the market were weak. A large percentage of the day the tick registered minus even though we had a plus print on the S&P Futures. The light volume signifies that traders are waiting and institutions are on the sidelines. I have no doubt that the Federal Reserve is trying to maintain the recent S&P gains before the notes are released. However, the action shows a deteriorating rally which could create a vacuum on the down side. There was a presence that saved this market from a large move downward Tuesday. The early morning saw S&P prices dip below 1638.50 which negated our sell at the 1648.50 price area. Then the computers kicked in their methodical buy programs but with an absence of tick. Once again this is a problem as the lack of institutional activity while the market is rallying does not build a foundation that can be maintained. The bonds had one of their tightest ranges we have seen in 2013. The volume also was far below normal which represents an environment of inactivity due to the FOMC minutes.
The blow off news top on the FOMC minutes hit 1653. This is a definite line in the sand and also could be a blow off top. Therefore, the news item prompted the blow off that prompted a bang into old resistance. The bonds are still no one’s friend that is long. However, they are becoming very battered and this could be instigating some anger to fight back. The result of the news saying the Treasury bonds are not to be bought for infinity, according to the FOMC, once again took a ball bat to the bonds. However, they are over done short term and some type of reflex bounce should occur of at least 2 to 3 points.
One of the indicators that I use as a stress point is the number of days since the last 30 point down day. The longer the period between 30 point declines, the greater the stress. We've had 15 days, meaning the stress is building exponentially. Any type of surprise could trigger a sharp decline as we really have no support of consequence till the 1626 price area. Next week is expiration which should have somewhat of a different environment.