Written by Gary
Midday Market Commentary For 03-19-2014
Traders are being VERY cautious in advance of the FOMC announcement today as the averages have sea-sawed along a narrow band this morning and remaining flat.
By noon the averages were still coasting along awaiting the FOMC statement undecided which road to take.
Today the main focus of investors is the FOMC meeting.
The main interest today is the FOMC meeting. There are four elements of today’s decision. First is the statement itself. It will likely recognize that the economy has slowed and that temporary factors were the main culprit. This signals confidence that the economic expansion continues.
Second is the decision to continue to taper at a measured pace. In practice, this means $10 bln a meeting and being able to stop the purchases altogether before the end of the year.
Third, Fed officials will update their GDP, unemployment and core PCE forecasts. The new appointees have not taken office yet, so the only difference is the absence of Bernanke’s forecasts. There may be a small downward revision in this year’s forecast of 2.8%-3.2% GDP, reflecting what has already transpired. A change in the 2015 or 2016 forecasts would be more significant.
These points as not very controversial, and if the FOMC were limited to these, we would likely regard the meeting as a non-event for the markets. However, the Fed’s challenge lies in the fourth element. The new chair will have a press conference in which she explains the evolution of forward guidance, away from the quantitative threshold approach toward what has been called a qualitative approach.
Global stocks were steady ahead of the FOMC announcing its latest policy decision. With the Fed expected to taper some more and abandon its 6.5% unemployment threshold for considering rate hikes, punters are focusing on what would push the Fed to finally raise rates. Writing on Reuters, Anatole Kaletsky reckons Janet Yellen has the chance to “transform” the way we think about economics. So no pressure then. Read More . . .
The short term indicators are leaning towards the hold side at the midday. The all important signs of reversal, up or down, have not been observed so we are mostly, at best, neutral and conservatively holding. The 50DMA, MACD, volume and a host of other studies have not turned, only a 6% correction (and recovery) and that is not enough for me to start shorting. I would advise caution in taking any position during this volatile transition period although Barchart.com shows a 40 % sell.
Several notes of negativity are that the daily volume is very low matching the period of historical highs in the past which could set the stage for addition weakness and market decline. The longer MACD view is starting to turn downhill, but not convincingly signaling a down trend as it is very weak. Lastly, the markets are oversold and the margin debt for stock purchases are at an all time high.
It is its ending of QE that worries me the most as many financial institution and emerging markets can not continue to push forward or upwards without the Fed’s ‘Market Viagra’. Even if the Fed reduces its purchases by $10 billion every month for the rest of 2014, the Fed will have acquired $320 billion more for its portfolio. Note, that in 2013, the Fed added more than $1.0 trillion in securities to its portfolio. The debt stands at 4 trillion and will be at 5 trillion by the time the taper is completed and that is one hell of a debt that ‘someone’ has to pay.
The longer 6 month outlook is now 40-60 sell and will remain slightly bearish until we can see what the effects are in the Fed’s ‘Tapering’ game plan. Again, I would also take chart and other technical indicators with a lessor degree of reliability for the time being and watch what the Janet Yellen’s Fed does over the next couple of months. All she did in the February testimony to a Senate panel is flap her lips but the charts and other technical indicators completely failed us this time around. Read at DailyFX, “wouldn’t it be easier if the Fed would just announce the proper level for the S&P and spare us all the policy announcements and market gyrations?”
Today investors are also worried about issues directly related to the Fed’s tapering and are considering this factor along with the Argentine Peso, South African Rand and the Yen. What is Ms. Yellen going to do today?
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The DOW at 12:30 is at 16333 down 4 or -0.02%.
The SP500 is at 1872 down 0.56 or -0.03%.
SPY is at 187.68 up 0.03 or 0.02%.
The $RUT is at 1204 down 1 or -0.12%.
NASDAQ is at 4330 down 3 or -0.08%.
NASDAQ 100 is at 3705 down 2 or -0.06%.
$VIX ‘Fear Index’ is at 14.45 down 0.07 or -0.48%. neutral Movement
The longer trend is up, the past months trend is positive, the past 5 sessions have been mixed and the current bias is sideways.
WTI oil is trading between 98.35 and 99.18 today. The session bias is mixed and fluctuating and is currently trading up at 98.72.
Brent Crude is trading between 106.87 and 105.71 today. The session bias is negative and is currently trading up at 105.89.
Gold fell from 1360.27 earlier to 1337.82 and is currently trading up at 1341.60. The current intra-session trend is negative.
Dr. Copper is at 2.932 falling from 2.962 earlier.
The US dollar is trading between 79.65 and 79.48 and is currently trading down at 79.61, the bias is currently sideways.
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Written by Gary