It was good to see a little action in the markets yesterday. It has been awhile.
I wasn't expecting much from the FOMC Statement, but the Fed delivered some pretty big news. Keeping interest rates low until "at least" 2014 is very significant. This is essentially QE, because keeping interest rates low allows the US to meet its debt obligations at the expense of the US dollar. This is nothing new, we have known the Fed's policy was to keep rates low, Bernanke already stated they would keep rates low until 2013. By saying yesterday that the Fed would keep rates exceptionally low through at least 2014 is just the Fed's way of driving the point home. The markets reacted accordingly, with buying. Equities up, precious metals up, commodities up, dollar down.
The Fed is just reminding the world that they plan to do everything in their power to debase the US Dollar. When consumption is low, investment is low, unemployment is high and huge debt/lower tax revenue is preventing the government from spending freely, the next best alternative to try and stimulate an economy is to debase the currency to make exports more attractive. This is the current strategy the US is implementing.
It will continue to be bullish for the market. We may see some fake-out moves to the downside in the near term, but the market is heading higher. Dips are officially buying opportunities in my opinion. The S&P 500 may be on its way to break 1400 now.
Before I get overly optimistic on future price action, I want to offer the reminder that all is not well in the world and the market remains vulnerable. The European debt situation has not gone away. The tension with Iran has not gone away either and these issues will create reason to sell equities at some point.
In any case, the Fed's Announcement yesterday provided more wood for the bullish bonfire. I like buying the dips. I continue to watch the 1287-1288 price level on the ES. If we do see a move that low in the coming days, it should be a great buying opportunity.
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Market has sold off more than 18 points from today's high.
ReplyDeleteTempting to buy into this market down here at ES 1312-1313. However, I think the better play is to wait for 1307-1308. If it doesn't get there in the regular session today, I would probably short the market after the close and look to cover and go long around 1307-1308
Missed my target long by a point. No reason to short here given the prior action. I continue to like longs however, if ES does trade down to 1207-1208.
ReplyDeleteSo what you're saying is that the dollar is going to fall. I wonder how fast. As a full time traveler who relies on dollars that are in the bank, I worry that the debasing of the dollar will effect my ability to drift...
ReplyDeleteOver the long term, I do believe the dollar will go lower. That being said, China does not want a lower dollar, Europe does not want a lower dollar, Japan does not want a lower dollar, Japan is in fact still trying (without success) to devalue their own currency. In other words, it is in the interest of all export economies that the dollar is not devalued. So what this means is that a lower dollar will be met with resistance from the majority of the world.
ReplyDeleteIf you are worried about a lower dollar though, you could consider keeping your savings in a precious metals based account. That of course warrants its own risk and the value of that account will fluctuate more than the value of your dollar based account. That being said, I believe the price of precious metals like gold and silver will continue higher in the years to come... This of course is a much bigger discussion than I can write here in this post :)
Good luck drifting!
Additional comment regarding the trade entry long at 1307-1308. I wouldn't take this entry until support gave some signal of confirmation and then I wouldn't defend the trade if it went against me. If I take the trade, I will post it here.
ReplyDelete1307-1308 entry will only be a scalp if I take the trade. Market under pressure after GDP missed expectations. I think 1301-1302 will likely be tested today... I like long entries there, but will not defend them.
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