GDP Disappoints, Fed Minutes Offer no Surprises

GDP came in on Wednesday morning at a significant miss of expectations showing that the economy weakened in the fourth quarter, with a minus 0.1 percent annualized pace.

FOMC minutes reveal the Fed's point of view with no surprises:

• Growth in economic activity paused in recent months
• Inflation has been running somewhat below the Committee’s longer-run objective
• If the outlook for the labor market does not improve substantially, the Committee will continue its purchases of Treasury and agency mortgage-backed securities, and employ its other policy tools as appropriate, until such improvement is achieved in a context of price stability
• The exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee’s 2 percent longer-run goal, and longer-term inflation expectations continue to be well anchored
• Voting against the action was Esther L. George, who was concerned that the continued high level of monetary accommodation increased the risks of future economic and financial imbalances. 

The thing that is genius about Bernanke and the Fed is that they have mastered the rhetoric which describes their policies to influence the markets in a positive way. Continued loose monetary policy is bullish for the markets and even the idea of tightening monetary policy can be viewed as bullish because that would mean employment is up and the economy is recovering. Fed minutes will likely be a non-issue for a while as the market already knows what to expect looking forward. Of course any surprises would certainly influence the markets, but expectations for now are that there will be no surprises.

I am officially bearish in the short-term. I believe 1506 on the ES is the short-term high (which happens to be right in the middle of my resistance range from the last post). I will now be looking to short any rallies. I'm looking for a bounce off the 1495 level on the ES and will look for shorts between 1500 and 1504. Consider stops on any shorts if the ES confirms a move above 1512. First target to the downside is 1487-1488 and second target is 1479-1481. I will consider longs again if the 1480 support holds.