September 13th, 2012
in Gary's blogging
Closing Market Commentary For 09-13-2012
Just what we need – more debt, thanks Ben. So what we have is an 'open-ended' program where the Fed's will continue to buy bonds until “they see a substantial improvement in the job market . . . will buy $40 billion of mortgage-backed debt per month” until the labor market improves. Personally, I didn't think it was much help to the jobs market when QE2 was implemented and I think this will all end badly.
The markets closed higher after the QE3 announcement amid speculation that it will not do the job as envisioned by the Doves at the Fed.
The algo computers apparently like the FOMC Operation Twist and QE3 more than the investors. The market volume drops precipitously but the averages move up. Does anyone else see an issue here? The HFT computers HAVE to get a leash on their outrageous operation!
If: $FED going to tolerate higher inflation; then: wages adjusted for inflation to fall further; finally: consumption falls. Not good.
Looks like some market participants were a bit disappointed as we did not get an unlimited buying program.
So then to make up for falling wages adjusted for inflation, consumers forced to take on more debt - creating another credit. Yikes.
. . . there are probably a lot of traders that want to do an operation fist on bernanke's face-Bahahah
More FOMC: A closer look reveals the true dovish nature of the statement:
"If the labor market does not improve substantially, the Committee will continue its purchases of agency MBS, undertake additional asset purchases, and employ its other policy tools as appropriate ... a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the economic recovery strengthens."
There is one big problem with the Fed's announcement of Open-Ended QE moments ago: it effectively removes all future suspense from FOMC announcements.
Why? Because the Fed has as of this moment exposed its cards for all to see from here until the moment it has to start tightening the money supply (which may or may not happen; frankly we don't think the Fed tightens until hyperinflation sets in at which point what the Fed does is meaningless).
It means easing is now effectively priced into infinity. Now rewind back to that one certain paper by the New York Fed, which laid it out clear for all to see, that if it wasn't for the expectation of easing in the 24 hour period ahead of the FOMC meeting, the market would be 50% or lower than where it is now, and would have been effectively in negative territory in the aftermath of the Lehman collapse.
What Bernanke did is take away this key drive to stock upside over the past 18 years, because going forward there is no surprise factor to any and all future FOMC decisions, as easing the default assumption.
It also means that Bernanke may have well fired his last bullet, and it, sadly, is all downhill from here, as soaring input costs crush margins, regardless of what revenues do, and send corporate cash flow to zero. Unfortunately, not even in the New Normal can companies operate without cash flow.
The Federal Reserve lowered its projection for U.S. economic growth for 2012 since its last forecast in June. However, the central bank lifted its estimate for 2013. The unemployment rate, meanwhile, is expected to stay at or above the 6% mark until at least 2015.
The RRR** was very narrow at the opening bell continuing to the midday mark and has not varied in the last 4 sessions. Interestingly, the 3X ETF's moved less that a point in reaction to the FOMC's announcement. That is still not enough to warrant a buy or sell stance. Further, this small movement means a bearish signal, so wait a session or so to see where this is all going.
Any trades will probably end up on the unprofitable side as long as this market remains flat and low volume. The volume did pick up after the FOMC meeting, but is still very low overall for interpenetrating a trend, plus it is falling off.
Swing trading is at your own risk and being the market is at a crossroads of sorts, I would prefer to sit on my hands rather than risk guessing incorrectly.
The DOW at 4:00 is at 13539 up 206 or 1.55%.
The 500 is at 1459.99 up 23.43 or 1.63%.
The $RUT is at 856.12 up 11.00 or 1.30%.
SPY is at 146.47 up 2.08 or 1.44%.
The trend is up and the current bias is up.
WTI oil is at 98.09 trading between 96.52 and 98.60 and the bias is neutral.
Brent crude is at 116.90 trading between 115.40 and 117.48 and the bias is neutral.
Gold is at 1765.32, trading between 1760.90 and 1772.43 with a neutral bias.
Dr. Copper is at 3.74 up from 3.69 earlier.
The US dollar rose from 79.72 earlier to 79.91, then crashed to 79.30 after the FOMC announcement, recovered and is currently trading at 79.38.
The 500 at the close. 1547 makes a triple top or a H&S. The first was at 1530. The second was at 1545 and we are only 87 points away.
The DOW at the close. 14198 makes a double top. We are 407 points away and that is not much.
The $RUT at the close. 866 marks a triple top. The first was at 856, the second was higher at 868. For all intents and purpose, we are at the resistance today.
SPY at the close. 151 makes a double top and 154 makes a triple top. Breaking out of its top Bollinger band probably means we will see a sideways movement over the next several sessions.
Senator John Cornyn, head of the Senate Republican Campaign Committee, said the Fed appeared to be "trying to juice the economy" ahead of the November 6 presidential election to help Obama. "It looks to be political," he said.
Brazilian Finance Minister Guido Mantega said he would keep a close eye on the impact of the Fed's monetary easing on Brazil's real currency. Mantega had accused the Fed's earlier bond buying of unfairly weakening the U.S. Dollar.
Stephen Stanley, an economist Pierpont Securities in Stamford, Connecticut, said that by tying its purchases to progress reducing U.S. unemployment, the Fed had "basically locked on the handcuffs and swallowed the key."
** RRR = Risk Reward Ratio
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Written by Gary