Fed Meetings: September 10 – 14

It was a week of Fed meetings. It slowed activity velocity and volume to almost a stand still. I think this is one of the narrowest ranges in the S&P we have seen all this year. I expected the volatility to expand dramatically as the week progressed. The S&P traveled in a very narrow path today but is still sitting above the box breakout price area. It is somewhat confusing to the bulls that the momentum has seriously declined. However, in weeks like this, the Fed tries to insight euphoria either with words or manipulation or both. Monday’s highs fell shy of our sell point at 149 ’15. We had two attempts the 149 ¼ that was repelled as the energy and horse power diminished. Therefore 149 ¼ became a key short term pivot point. The fact that there were almost no buyers other than the Fed in the bonds set up a possible scenario whereby less than stellar optimism from the Fed could bring the bonds crashing downward. The fact that we briefly dipped inside the S&P box and then moved to the upside was a sign for more to come with the weak longs being scared to the sidelines too quickly once again, leaving the market firmly intact. A short term 148 ’10 price area looms larger each successive day. A close below that number would open the flood gates. The euphoric move of last week seems like ancient history. All ears awaited Bernanke’s rhetoric later in the week.

Two very important matters being discussed behind closed doors are: the political timing for a Fed move and the second is keeping some ammunition available for the fiscal cliff. Therefore the economic situation perhaps is not the timing crunch that I thought was in play. Does it really make a great deal of difference if the Fed reacts now or after election? The bonds took a licking but can they still keep ticking? Wednesday’s price action broke through a key reversal point at 148 ’10. This was important because the announcement by the Fed would determine the strength or weakness of perhaps the long term of the bonds.

There were several characteristics denoting topping action at week’s end. First, we never had the plus 1000 tick even with higher highs and the backdrop of the fed induced momentum. Secondly, the highs provided a pullback of more than 10 points as momentum disintegrated. Thirdly, the news that prompted the big move absorbed so the adrenaline shot has run through the system. Historically, September does have pullbacks. Since we have had an extended move upward and the Fed has shot their last bullets, the euphoria could diminish quickly. Common sense dictates some sort of pullback is a high probability. The bonds’ bubble has burst. Friday’s trading action took us to lows not seen since May. All this twist malarkey has generated nothing over the last 4 months as the fed has spent an incredible amount of money forcing bonds upward. The technical pattern provided lower highs and lower lows throughout the last several months. Ironically, the Fed appears to have abandoned their operation twist focus. This is an admission, albeit silent, that it did not work.