As expected, the Fed didn't announce a reduction in QE, but Bernanke did say there was still a possibility the Fed could start tapering its asset purchases later this year. The markets sold-off pretty much any and every asset class in response.
This sell reaction was stronger and more immediate than I expected. If Bernanke and the Fed were trying to gauge what type of psychological effect that the idea of reducing asset purchases would have on the market, I think they just received a rather rude answer.
Whether the selling was directly in response to the possibility of the Fed tapering before the end of the year or if it was just an excuse to push down an overbought market, the reaction was irrational in my opinion. I had actually speculated that we might see an initial response of buying that would follow the Fed announcement, but it never happened. There was no fake-out to the upside, the selling started immediately and hasn't really let up.
While price action is bearish, I do not expect the selling to continue without at least a solid bounce to the upside first. I unfortunately got stuck in a long position that has yet to give me the right opportunity to exit. Because I believe the market will reflect on the last few days of irrational selling with a rational frame of reasoning, I continue to hold my long entry in anticipation of a bounce. Friday's rebound off the lows signals that there should be additional room to move to the upside. I will look to sell 1/2 my position with a move back above 1600 on the ES.
In my last post, I mentioned a potential bottom of any correction in the 1555-1565 range on the ES (U13). That price range is not far away so it is very possible the ES trades down to my key support before we get a decent bounce. I do expect to see buying come in before that happens, we'll have to wait and see.
Bonds
I've spoken about bonds on a few occasions in the past weeks. Each time, I was looking for support to come in and each time support has been broken. Bonds have now traded lower than the most critical support level at 110 on the TLT. This break of support was not only the 3d break of a possible support level in the last month, it was also on very high volume. This is a high odds indicator of capitulation. It will be important to see a daily close back above 110 (TLT) on Monday to gain confidence in the likelihood of a reversal.
Gold
Fear of tapering by the Fed has also sent the price of Gold lower. While the price action in Gold remains bearish, I will be watching for a capitulation type move somewhere in the 1150-1250 price range on the YG (Q13 Gold Futures Contract). I will strongly consider buy entries when that happens.
The bottom line is that fear is rampant across most asset classes and when fear grips the minds of market participants, its often the time to take the reverse bet. I'm not suggesting to get bullish for any extended period of time, but I expect positive price action in the near-term.
Levels to watch on the ES (U13 Sept Contract):
Resistance above at: 1596-1597, 1601-1602, 1611-1612, 1618-1619, 1623-1624
Support below at: 1570-1571, 1565-1566, 1557-1558, 1554-1555
Showing posts with label Fed. Show all posts
Showing posts with label Fed. Show all posts
Monday, June 24, 2013
Wednesday, June 19, 2013
Market Bullish Ahead of the FOMC Announcement
The immediate-term price action is quite bullish and I wouldn't be surprised to see the ES approach or even retest the May highs. In the bigger picture however, I see the market in a topping pattern and that keeps the bearish outlook alive. I do expect to see lower lows as we trade into the summer.
As I write this and the ES trades near 1645, I am more or less neutral. I will be watching the market reaction to the FOMC announcement today (2.00 pm EST) and the press conference with Ben Bernanke (2.30 pm EST).
Expectations:
Fed will not taper. $85 billion in asset purchases will continue.
The catalyst that started the selling back on May 22nd, was the comment by Ben Bernanke who said, "If we see continued improvement and we have confidence that that's going to be sustained, then we could in the next few meetings ... take a step down in our pace of purchases."
Since this taper comment, Japanese stocks traded down as much as 20%, emerging markets were down 10% and the S&P 500 was down 5%. All this because Bernanke suggested the Fed will create less than $85 billion dollars per month at some point. But lets get real, the Fed is not going to do this any time soon. $85 billion per month in asset purchases will continue and here is why:
As I write this and the ES trades near 1645, I am more or less neutral. I will be watching the market reaction to the FOMC announcement today (2.00 pm EST) and the press conference with Ben Bernanke (2.30 pm EST).
Expectations:
Fed will not taper. $85 billion in asset purchases will continue.
The catalyst that started the selling back on May 22nd, was the comment by Ben Bernanke who said, "If we see continued improvement and we have confidence that that's going to be sustained, then we could in the next few meetings ... take a step down in our pace of purchases."
Since this taper comment, Japanese stocks traded down as much as 20%, emerging markets were down 10% and the S&P 500 was down 5%. All this because Bernanke suggested the Fed will create less than $85 billion dollars per month at some point. But lets get real, the Fed is not going to do this any time soon. $85 billion per month in asset purchases will continue and here is why:
- Unemployment rate has not reached Fed target of 6.5%
- Inflation levels remain subdued.
- The Fed balance sheet is excessive, it has been excessive and it will continue to be excessive. Tapering will not change this.
- The price of Treasury Bonds is approaching important support levels. The Fed does not want to see selling in treasuries continue at this point. Bernanke will make sure this does not happen. This alone guarantees (in my opinion) that the Fed will not taper at this time.
- Industrial and tech companies need to see an economic recovery in the developing world in the 2nd half of the year. Tapering is not the answer and without a recovery in the developing economies, a world wide economic slow down could ensue.
So what does that mean for equities? I really don't think it means much. Continuing to add $85 billion of liquidity into the markets is enough to prevent sellers from reeking havoc on the markets, but it isn't enough to to surge the markets to new highs from here. We have already seen equities bid up ahead of the FOMC announcement, so some of the bullish sentiment that comes along with continued easing, is already priced in. If the Fed does happen to reduce asset purchases (or taper), you can expect heavy selling to commence. Like I said earlier, this is a very unlikely scenario at this time.
The market remains elevated (ES is up 23% since November 16th of last year) and price action over the past month continues to signify a potential topping pattern. It would take a surprise increase in the level of asset purchases by the Fed to sustain this remarkable bull market without seeing a more significant correction first.
We'll see what kind of language we get from Bernanke. There is still room for the market to move a little higher before more sellers come back into the picture.
Levels to watch on the ES (U - September 2013 Contract):
Resistance above at: 1655-1656, 1659-1660, 1664-1665, 1674-1675
Support below at: 1635-1636, 1629-1630, 1607-1608, 1592-1593.
Looking further ahead, I am expecting a bottom in the 1555-1565 range. But we'll listen to what Ben has to say before getting too ahead of ourselves...
Wednesday, January 30, 2013
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.
Wednesday, December 12, 2012
Market Higher Ahead of Final FOMC Announcement of the Year
Part of the recent run-up in stock market price is likely due to speculation that the Fed will increase its asset purchase program by an additional $45 billion to compensate for the termination of Operation Twist at the end of the year. Operation Twist will not be extended because the Fed is running low on short-term securities to sell. So to continue to buy longer term maturities in the same capacity, the Fed will need to do so through additional quantitative easing.
This will bring total outright purchases by the Fed to $85 billion/month. This is an additional $45 billion on top the current open-ended purchases of $40 billion (from QE3 announced 10/24). Anything less than this will be perceived as a disappointment and the market will likely sell-off as a result. Expect volatility following the announcement at 12:30pm EST as well as Bernanke's press conference later in the afternoon at 2:15pm EST.
The Fed could add $2.2 trillion or more to its balance sheet over the next two years. This will continue to keep interest rates low and to maintain an artificial level of support underneath the financial markets looking forward.
Without surprise monetary easing measures by the Fed, or something larger than an additional $45 billion/month in asset purchases, I expect markets to sell off following the Announcement. If we do get the sell-off, it will setup a nice buying opportunity next week. We really haven't seen any selling in this market since the ES E-mini S&P 500 Futures bottomed at 1340.25 on November 16th. This market is due for a little bit of fear before the end of the year, it is due for at least a small pullback. That pullback, if we get it, will create the first good dip-buying opportunity since mid-November to position yourself long into the end of the year.
Some levels to watch on the ES (Z December Contract):
Resistance above at 1435-1436, 1439-1440, 1450-1451, 1455-1456
Support below at 1419-1420, 1411-1412, 1401-1402
Monday, September 17, 2012
What Latest Fed Intervention Means for the Market
The Fed's announcement last week is very aggressive. With a $40 billion/month open-ended MBS asset purchase program, Bernanke basically said that there is no cap on the amount of mortgage backed securities the Fed will buy. This comes at a time when many economic indicators have been positive (aside from employment) and the stock market is at multi-year highs.
Since there is not a definitive number in the Fed language, there is a certain amount of uncertainty in terms of the amount of stimulus this $40 billion/month represents. But if you listen to what Bernanke did say in his press conference you have to realize that the latest Fed action is extremely aggressive. I will quote Bernanke to emphasize this point.
The market has yet to digest this key point fully, but it will do so over time. What I mean is that the move up over the last two days is only the beginning. Yes, we can have retracements to the downside as the market moves higher, but this market is headed a lot higher.
We must also realize that the Fed will continue to reinvest its existing holdings through the continuation of "Operation Twist" which brings total asset purchases by the Fed to $85 billion/month. And we can't forget that the 0% interest rate policy was extended until at least mid 2015.
In my opinion this is a buy every dip type of market until the fiscal cliff situation comes into play. There will be some up and down action as we approach the November elections and speculation is rampant whether or not the Democrats will maintain office. More confidence that Obama will be re-elected will put some downward pressure on markets, but the path of least resistance will remain to the upside. This will be the case until the Fiscal Cliff situation comes into play following the election. If Obama wins (and this is highly likely), the fear of not resolving the looming tax hike dilemma will be greater and so the downward pressure on the markets will also be greater. There will be a lengthy conflict on whether or not to go through with the scheduled tax hikes as we approach the end of the year. As this Fiscal Cliff debate takes place, the market should finally undergo a correction. So, November will likely be a good opportunity to test the short-side of the market. If the debate over the debt ceiling is anything like the one that took place in the summer of 2011, there will be a healthy move lower in price. Eventually I think Obama will have to delay tax hikes and the debt ceiling will have to be raised to make that possible. Following a would-be sell-off, this will be the time to buy back into the market.
Getting back to the present situation:
Market will likely consolidate and inch higher heading into the first week of October when we get the first Presidential debate between Romney and Obama (10/3/2012) and the next ECB announcement (10/4/2012) and then the US Employment report (10/5/2012).
Since there is not a definitive number in the Fed language, there is a certain amount of uncertainty in terms of the amount of stimulus this $40 billion/month represents. But if you listen to what Bernanke did say in his press conference you have to realize that the latest Fed action is extremely aggressive. I will quote Bernanke to emphasize this point.
"We are not going to be premature in removing policy accommodation. Even after the economy starts to recover more quickly, even after the unemployment rate begins to move down more decisively, we're not going to rush to tighten policy, we're going to give it time to make sure the recovery is well established."
-- Ben Bernanke Press Conference, 9/13/2012
So while he/the Fed did not come out and say when these asset purchases would end, it is safe to say they will continue for quite some time.The market has yet to digest this key point fully, but it will do so over time. What I mean is that the move up over the last two days is only the beginning. Yes, we can have retracements to the downside as the market moves higher, but this market is headed a lot higher.
We must also realize that the Fed will continue to reinvest its existing holdings through the continuation of "Operation Twist" which brings total asset purchases by the Fed to $85 billion/month. And we can't forget that the 0% interest rate policy was extended until at least mid 2015.
In my opinion this is a buy every dip type of market until the fiscal cliff situation comes into play. There will be some up and down action as we approach the November elections and speculation is rampant whether or not the Democrats will maintain office. More confidence that Obama will be re-elected will put some downward pressure on markets, but the path of least resistance will remain to the upside. This will be the case until the Fiscal Cliff situation comes into play following the election. If Obama wins (and this is highly likely), the fear of not resolving the looming tax hike dilemma will be greater and so the downward pressure on the markets will also be greater. There will be a lengthy conflict on whether or not to go through with the scheduled tax hikes as we approach the end of the year. As this Fiscal Cliff debate takes place, the market should finally undergo a correction. So, November will likely be a good opportunity to test the short-side of the market. If the debate over the debt ceiling is anything like the one that took place in the summer of 2011, there will be a healthy move lower in price. Eventually I think Obama will have to delay tax hikes and the debt ceiling will have to be raised to make that possible. Following a would-be sell-off, this will be the time to buy back into the market.
Getting back to the present situation:
Market will likely consolidate and inch higher heading into the first week of October when we get the first Presidential debate between Romney and Obama (10/3/2012) and the next ECB announcement (10/4/2012) and then the US Employment report (10/5/2012).
Thursday, September 13, 2012
Fed agrees to increase policy accommodation by purchasing additional mortgage-backed securities at $40 billion per month
Well, we got the additional easing that I didn't actually expect the Fed to announce. I guess the $1.8 Trillion fund managing Bill Gross was right. The Fed did offer more QE...
Market is reacting positively as expected by this kind of news. ES saw an initial gain of almost 12 points following the announcement. It since sold off 10 points providing a dip buying opportunity (in the event of a pro-QE announcement) like I mentioned in my previous post. Lets see how the market reacts to what Bernanke has to say at 2:15 EST. Watch it here.
An (open-ended) $40 billion / month agency mortgage-backed securities buying program by the Fed is significant and you have to favor buying the dips going forward. That being said, this comes on the heels of an already rallying market, one that has seen consistent gains since the start of June 2012. Be careful chasing this market. We could see a sell-the-news opportunity in the coming days. If that happens, consider it a gift, it is a buying opportunity.
To QE or Not to QE? That is Fed's Question
But my question is how much expectation is there that the Fed will announce more QE. There has been much speculation that the Fed will offer a plan to expand its balance sheet by offering additional easing measures today and more pundits seem to be chiming in with this opinion than in times past. While I am ready for the possibility that this may be the case, I do not think it is going to happen.
Yes the employment situation is stagnant, but is buying mortgage backed securities going to change that? Highly unlikely. Another way the Fed could ease, is to lend dollars to the ECB so that ECB could then fund their own easing measures. The US "easing" in this case would be in the assumption that those European lent dollars would eventually find their way back into the US economy. Sounds like a bad idea to me and is unlikely to be announced today. The main reason why the Fed won't offer more QE today though is because the market is at its highest levels since early 2008 and other economic indicators (aside from employment) have been refreshingly positive of late. More QE now would be acknowledgement by the Fed that there is little hope for the economy. There is no way that the time is now to offer additional QE. Keep those tools in the shed Bernanke.
But hey the Federal Reserve isn't asking my opinion and all I can do is speculate on what is going to come out of yesterday's minutes. I won't worry about whether I am right or wrong, I will just be ready to trade the Market reaction to whatever comes out of the Fed announcement and Bernanke's press conference.
We will see the first reaction today at 12:30 EST when the FOMC announcement will be released. The Fed will leave rates unchanged and will likely extend guidance beyond 2014 to keep rates exceptionally low. If there is a new asset purchase program, it will be detailed in the announcement. If this happens, the market will react with volatility and I would look to buy the first significant dip. If there is some form of QE announced we may not even get a significant dip. If you are of the belief that there will be additional QE, then perhaps you are already long going into the announcement. But you have to be cautious playing that game as the market is already bid up quite a bit ahead of that potential news. That is why my biggest question is how much is or isn't additional QE already priced into the market. The market reaction later today should provide answers.
At 2:15pm EST, Bernanke will give his press conference. Again, depending on what comes out of the announcement, the market will be reacting to Bernanke's statements here and we can expect volatility. Ultimately, if there is no new easing/asset purchase program by the Fed, I'll be looking for opportunities to get short and sell any rallies. If there is a new easing program, I'll be looking to buy any significant dips.
As much anticipation as there is ahead of the Fed announcement, I think the bigger issue remains in Europe and not whether the Fed will ease further. I believe that money printing will come from the ECB before it comes from the Fed and likewise, markets seem to react more to what Draghi has to say lately than what Bernanke has to say...
I will comment more following Bernanke's press conference which you can watch here.
Yes the employment situation is stagnant, but is buying mortgage backed securities going to change that? Highly unlikely. Another way the Fed could ease, is to lend dollars to the ECB so that ECB could then fund their own easing measures. The US "easing" in this case would be in the assumption that those European lent dollars would eventually find their way back into the US economy. Sounds like a bad idea to me and is unlikely to be announced today. The main reason why the Fed won't offer more QE today though is because the market is at its highest levels since early 2008 and other economic indicators (aside from employment) have been refreshingly positive of late. More QE now would be acknowledgement by the Fed that there is little hope for the economy. There is no way that the time is now to offer additional QE. Keep those tools in the shed Bernanke.
But hey the Federal Reserve isn't asking my opinion and all I can do is speculate on what is going to come out of yesterday's minutes. I won't worry about whether I am right or wrong, I will just be ready to trade the Market reaction to whatever comes out of the Fed announcement and Bernanke's press conference.
We will see the first reaction today at 12:30 EST when the FOMC announcement will be released. The Fed will leave rates unchanged and will likely extend guidance beyond 2014 to keep rates exceptionally low. If there is a new asset purchase program, it will be detailed in the announcement. If this happens, the market will react with volatility and I would look to buy the first significant dip. If there is some form of QE announced we may not even get a significant dip. If you are of the belief that there will be additional QE, then perhaps you are already long going into the announcement. But you have to be cautious playing that game as the market is already bid up quite a bit ahead of that potential news. That is why my biggest question is how much is or isn't additional QE already priced into the market. The market reaction later today should provide answers.
At 2:15pm EST, Bernanke will give his press conference. Again, depending on what comes out of the announcement, the market will be reacting to Bernanke's statements here and we can expect volatility. Ultimately, if there is no new easing/asset purchase program by the Fed, I'll be looking for opportunities to get short and sell any rallies. If there is a new easing program, I'll be looking to buy any significant dips.
As much anticipation as there is ahead of the Fed announcement, I think the bigger issue remains in Europe and not whether the Fed will ease further. I believe that money printing will come from the ECB before it comes from the Fed and likewise, markets seem to react more to what Draghi has to say lately than what Bernanke has to say...
I will comment more following Bernanke's press conference which you can watch here.
Wednesday, August 29, 2012
We Await Bernanke's Speech on Monetary Policy Since the Crisis
Bernanke's speech this coming Friday at Jackson Hole should spark this incredibly dull market into some action.
With limited volume and small trading ranges, the E-mini S&P 500 Futures (ES) is up more than 4.2% since the low on August 2nd and is setting up for at least a small correction. September is historically a bad month in the market and it is looking like September of 2012 is setting up to fit that bill.
Much of the price gains the markets have experienced over the summer can be attributed to expectations of further easing by the Fed. There is no chance, in my opinion, that Bernanke will announce any official new easing measures at Jackson Hole. Last week's FOMC minutes that seemed to support more QE have already been disregarded as outdated. Economic data is just not weak enough to warrant it. GDP numbers released this morning were better than expectations adding to the argument against more QE.
So without more easing, I expect the market reaction to be one of selling in September. Its not that the market expects more easing measures to come out of Jackson Hole, but without at least some solid bait to feed on the expectations that more easing is likely to come out of the September FOMC meeting, the market will have no choice but to sell-off a bit from its current frothy levels. At the same time, I am not overly negative on the markets. Not needing additional monetary easing is a sign that the economy is not weak enough to warrant it. Economic data continues to improve and the market believes the Fed will act if it needs to. This creates an artificial base that will keep price from trading too low. Draghi and the ECB could also spark the markets with news of a bond buying program in Europe.
Once volume picks up, I will post price levels that correspond to the view that a small correction is coming and will be followed by what could be a major buying opportunity.
With limited volume and small trading ranges, the E-mini S&P 500 Futures (ES) is up more than 4.2% since the low on August 2nd and is setting up for at least a small correction. September is historically a bad month in the market and it is looking like September of 2012 is setting up to fit that bill.
Much of the price gains the markets have experienced over the summer can be attributed to expectations of further easing by the Fed. There is no chance, in my opinion, that Bernanke will announce any official new easing measures at Jackson Hole. Last week's FOMC minutes that seemed to support more QE have already been disregarded as outdated. Economic data is just not weak enough to warrant it. GDP numbers released this morning were better than expectations adding to the argument against more QE.
So without more easing, I expect the market reaction to be one of selling in September. Its not that the market expects more easing measures to come out of Jackson Hole, but without at least some solid bait to feed on the expectations that more easing is likely to come out of the September FOMC meeting, the market will have no choice but to sell-off a bit from its current frothy levels. At the same time, I am not overly negative on the markets. Not needing additional monetary easing is a sign that the economy is not weak enough to warrant it. Economic data continues to improve and the market believes the Fed will act if it needs to. This creates an artificial base that will keep price from trading too low. Draghi and the ECB could also spark the markets with news of a bond buying program in Europe.
Once volume picks up, I will post price levels that correspond to the view that a small correction is coming and will be followed by what could be a major buying opportunity.
Thursday, August 23, 2012
Fed Minutes Bullish, but Market Reaction Limited So Far
Its interesting to observe market behavior following yesterday's Fed minutes which suggested members are warming up to the idea of increased stimulus. This would have ignited a significant rally had it come a month ago. But yesterday's rally lost steam quickly and markets have already traded down only 4 points off yesterday's lows.
This morning's negativity is in reaction to St. Louis Fed President Bullard who contradicted yesterday's minutes when he said that current economic conditions do not yet warrant further easing. Even before Bullard's comments, though, the reaction to the Fed's bullish minutes did not ignite nearly the rally that I would have expected. This may be just because we remain in the summer vacation time-period in the markets, but it may also be signalling that the markets do not have that much steam left to push them higher.
That being said, I continue to like the market if the ES trades down to the lower 1400s and support confirms there. So we'll see how the first hour of trading goes this morning. I like long entries down in the lower 1400s on the ES.
This morning's negativity is in reaction to St. Louis Fed President Bullard who contradicted yesterday's minutes when he said that current economic conditions do not yet warrant further easing. Even before Bullard's comments, though, the reaction to the Fed's bullish minutes did not ignite nearly the rally that I would have expected. This may be just because we remain in the summer vacation time-period in the markets, but it may also be signalling that the markets do not have that much steam left to push them higher.
That being said, I continue to like the market if the ES trades down to the lower 1400s and support confirms there. So we'll see how the first hour of trading goes this morning. I like long entries down in the lower 1400s on the ES.
Wednesday, June 20, 2012
Watch FOMC Press Conference with Ben Bernanke Live June 20th, 2012
Click here: for the Latest Thoughts on Bernanke and the Fed.
Streaming Video by Ustream.TV
FOMC Announcement to come at 12:30pm EST today and will be followed by Ben Bernanke's press conference at 2:15pm EST. It was only a little more than two weeks ago that the ES traded down as low as 1255. The ES has been bid up 100+ points since then and you can attribute the buy orders as speculative bets that the Fed would announce some new easing measures or stimulus or QE3 at the next meeting (which will be announced today).
Things looked much worse a couple of weeks ago than they do today, at least in terms of stock market prices and an argument for more easing was more plausable. My thoughts on the announcement today is that there will be no new major news. Bernanke will repeat the same things we have heard in the past...
Streaming Video by Ustream.TV
FOMC Announcement to come at 12:30pm EST today and will be followed by Ben Bernanke's press conference at 2:15pm EST. It was only a little more than two weeks ago that the ES traded down as low as 1255. The ES has been bid up 100+ points since then and you can attribute the buy orders as speculative bets that the Fed would announce some new easing measures or stimulus or QE3 at the next meeting (which will be announced today).
Things looked much worse a couple of weeks ago than they do today, at least in terms of stock market prices and an argument for more easing was more plausable. My thoughts on the announcement today is that there will be no new major news. Bernanke will repeat the same things we have heard in the past...
- Unemployment levels remain elevated, but labor market conditions are improving
- Increases in inflation levels are transitory, longer term inflation levels remain stable
- The committee expects to see moderate growth continue over the short-term and to pick up gradually over coming quarters. This in turn will help bring down levels of unemployment over time.
- The committee expects to maintain a highly accommodative stance on monetary policy for the foreseeable future
With stock prices only 4% off this year's highs and economic conditions relatively stable, there is no way the Fed can rationalize another round of QE. Operation Twist is scheduled to end in September, so look for the Fed to announce that this will be extended. That will not be a surprise and should not provide any catalyst for buying. Without some form of stimulus in the form of QE or some sort of assistance to help the debt situation for countries like Spain, Greece, Italy or any of the Other PIIGS, expect the markets to be disappointed. This is my expectation and therefore I will be looking to sell any rallies looking forward assuming the Fed does not offer any surprises. We'll see... I'll comment following Bernanke's press conference...
To summarize, I expect the Fed to disappoint by not giving the market what it has become accustomed to getting, more QE. This is negative for the stocks and means that I am bearish looking forward. I like selling rallies and will not be surprised to see lower lows in the coming months. If Bernanke does offer up any surprises today, my outlook will change, we'll have to wait and see.
Thursday, April 26, 2012
Market Opens Lower on Poor Data Out of Europe and Disappointing Jobless Claims in the US
Weak data in Europe and disappointing initial jobless claims in the states have sent futures lower this morning.
Bernanke's press conference yesterday did not reveal anything that the market didn't already know, so I can't say my overall bias changes one way or the other following the comments. We continue to be trading in a range with support in the low to mid 1350s ES and Resistance in the high 1380s ES. We'll eventually break out of this range and my bias remains that we will make lower lows before we make higher highs.
Regarding the FOMC announcement, the one major point of significance that I can't ignore, is the emphasis that Bernanke put on how accommodative the Fed has been in its effort to ensure that the economic recovery continues. He made it clear that if economic conditions warrant it, the Fed will use the tools in its toolkit as necessary. He actually responded to a question about QE3 and said that the Fed would initiate QE3 as needed. This is not going to be the catalyst to send the markets back up to the highs in the immediate term, but it is a philosophy of the Fed that will keep a floor underneath the markets looking forward. And all this means is that if things get bad in the future, the Fed will prevent the market from crashing like we experienced back in 2008 and early 2009. It basically takes the fear out of the equation and tells me I can be a confident buyer when the time comes that things look to be at their worst.
Levels to watch today on the ES:
Resistance above at: 1387-1388, 1392-1393
Support below at: 1381-1382, 1375-1376, 1371-1372
Bernanke's press conference yesterday did not reveal anything that the market didn't already know, so I can't say my overall bias changes one way or the other following the comments. We continue to be trading in a range with support in the low to mid 1350s ES and Resistance in the high 1380s ES. We'll eventually break out of this range and my bias remains that we will make lower lows before we make higher highs.
Regarding the FOMC announcement, the one major point of significance that I can't ignore, is the emphasis that Bernanke put on how accommodative the Fed has been in its effort to ensure that the economic recovery continues. He made it clear that if economic conditions warrant it, the Fed will use the tools in its toolkit as necessary. He actually responded to a question about QE3 and said that the Fed would initiate QE3 as needed. This is not going to be the catalyst to send the markets back up to the highs in the immediate term, but it is a philosophy of the Fed that will keep a floor underneath the markets looking forward. And all this means is that if things get bad in the future, the Fed will prevent the market from crashing like we experienced back in 2008 and early 2009. It basically takes the fear out of the equation and tells me I can be a confident buyer when the time comes that things look to be at their worst.
Levels to watch today on the ES:
Resistance above at: 1387-1388, 1392-1393
Support below at: 1381-1382, 1375-1376, 1371-1372
Wednesday, April 25, 2012
Watch FOMC Press Conference with Ben Bernanke Live Today 4/25/2012 at 2:15pm EST
Click here: for the Latest Thoughts on Bernanke and the Fed.
Streaming Video by Ustream.TV
Watch for volatility in the markets this afternoon. A failure to show a positive inclination to more easing or QE3 shouldn't have as much of a negative effect on price action as it has in the past, as the market is not expecting it as much as in previous months. One thing to look out for is the Fed's forecast on growth and inflation and if it continues to stick with the plan to keep rates low. Any mention that there is not a need to stick with the plan to keep rates low until at least 2014 should influence selling in the market. In any case, I think there is more of a chance for disappointment in reaction to the Fed's forecast rather than elation... we'll see...
Streaming Video by Ustream.TV
Watch for volatility in the markets this afternoon. A failure to show a positive inclination to more easing or QE3 shouldn't have as much of a negative effect on price action as it has in the past, as the market is not expecting it as much as in previous months. One thing to look out for is the Fed's forecast on growth and inflation and if it continues to stick with the plan to keep rates low. Any mention that there is not a need to stick with the plan to keep rates low until at least 2014 should influence selling in the market. In any case, I think there is more of a chance for disappointment in reaction to the Fed's forecast rather than elation... we'll see...
Wednesday, April 4, 2012
Markets Weak Following Yesterday's FOMC Minutes
Markets very weak this morning as ES is now trading below yesterday's lows. The negative reaction is in response to yesterday's FOMC minutes in which members suggested that the timing of the removal of existing accommodative policy could be moved up from the existing late 2014 date if significant improvements in economic data warrant it.
European markets also lower as Spanish bonds yields at highest level since November of last year.
Levels to Watch today on the ES:
Resistance above at: 1399.50-1400.50, 1404.50-1405.50, 1408-1409
Support below at: 1394.50-1395.50, 1389-1391, 1384-1385
European markets also lower as Spanish bonds yields at highest level since November of last year.
Levels to Watch today on the ES:
Resistance above at: 1399.50-1400.50, 1404.50-1405.50, 1408-1409
Support below at: 1394.50-1395.50, 1389-1391, 1384-1385
Monday, March 26, 2012
Back Above 1400 on the ES
After feigning weakness with three straight days of declines last week, buyers stepped in at the end of the week. The ES rallied 14 points off the low on Friday. That rally continued last night and got an added boost when Ben Bernanke mentioned (in comments this morning) that the Fed must consider more accommodation to aid the recovery. The ES quickly rallied an additional 5 points. Gold, which has struggled a bit lately, surged more than 1.2% immediately following the comments.
Levels to watch today on the ES:
Resistance above at: 1403.75-1404.75, 1408-1409
Support below at: 1399-1400, 1396.50-1397.50
Levels to watch today on the ES:
Resistance above at: 1403.75-1404.75, 1408-1409
Support below at: 1399-1400, 1396.50-1397.50
Thursday, January 26, 2012
Bernanke and the Fed Provide More Reason To Sell the Dollar and Get Your Risk On
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.
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.
Wednesday, January 25, 2012
Watch FOMC Press Conference with Ben Bernanke Live Here 1/25/2012
12:30pm EST: FOMC rate decision and statement.
2:00pm EST: Forecasts released.
2:15pm EST: Fed Chairman Bernanke press conference. Watch Below:
Maybe we will see some increase in volume and volatility this afternoon following Bernanke's press conference. I will likely be watching from the sidelines until the market reacts and reveals sentiment.
If the market shows a negative reaction, I like support at 1295-1296 on the ES and even more so at 1287-1288 ES. On the opposite side, I like resistance at 1319-1320 and would likely short any rallies to that level.
2:00pm EST: Forecasts released.
2:15pm EST: Fed Chairman Bernanke press conference. Watch Below:
Maybe we will see some increase in volume and volatility this afternoon following Bernanke's press conference. I will likely be watching from the sidelines until the market reacts and reveals sentiment.
If the market shows a negative reaction, I like support at 1295-1296 on the ES and even more so at 1287-1288 ES. On the opposite side, I like resistance at 1319-1320 and would likely short any rallies to that level.
Tuesday, November 15, 2011
Market Rallies This Morning After Comments by Chicago Fed's Evans
ES Rallied 9 points following comments by Chicago Fed's Evans who said he expects policy rate to stay "low for longer than mid-2013." For the short side to remain in play today, 1252-1254 needs to hold as resistance on the ES.
Italian bond yields are back above 7%. Yields this high are not sustainable in terms of Italy being able to meet their debt obligations. I remain biased to the short side.
Italian bond yields are back above 7%. Yields this high are not sustainable in terms of Italy being able to meet their debt obligations. I remain biased to the short side.
Wednesday, November 2, 2011
Watch FOMC Press Conference Live
Stream videos at Ustream
Not expecting significant reaction to the FOMC meeting today. Statements released so far are more or less in-line with previous statements. No new measures have been announced, though Chicago Fed President Charles Evans dissented by requesting more accommodation.
Some selling has followed the announcement.
In any case, Bernanke will speak live at 2:15pm EST. You can watch it live above.
Tuesday, September 20, 2011
What to Expect from Bernanke and the FOMC Announcement
The FOMC began its two day meeting this morning and will make its announcement on monetary policy tomorrow (Wednesday) at 2:15pm EST.
I am expecting volatility following the announcement. It is a gamblers game to try and predict how the market will react, but often times the initial move is the false move and will be followed by a reversal. We already know what the Fed's longer-term game plan is. To put it simply, the Fed wants to keep interest rates low and devalue the US dollar. This is nothing new. Low interest rates encourage spending and a devalued dollar makes US exports more affordable for foreign importers. This in theory will increase employment and stimulate the economy. At the same time it will decrease the existing US debt by essentially making that debt worthless. If the dollar is worth half as much as it once was, that makes the debt only half as large as it should be. This is good for an insolvent government, but bad for its people as their ability to purchase real assets decreases.
That describes what the Fed wants to do. Now the question is what will they actually announce tomorrow?
OPTION A)
More Stimulus in the form of a QE3 type of measure:
There are some economic conditions, at present, that could warrant this type of action. The US has seen zero job growth and flat retail sales in August. Commodity prices seem to be in a downtrend which provides additional support that inflation is not a problem. That being said, I don't see QE3 (or something similar) as an option. Expanding the balance sheet to buy more bonds will send more money into the precious metals market and drive commodity prices higher. The Fed and Central Banks around the world do not want to see the price of Gold increase further. They want to continue to deceive the uninformed public that fiat currency is legitimate tender. Depreciating currencies will eventually lead to the adoption of a gold standard or something like it and that would prevent the Central Banks from being able to print money at will. QE1 and QE2 can already be viewed as failures and launching a QE3 now would be ill-advised. It will likely happen down the road, but the time is not now.
OPTION B)
The Fed will announce a plan to sell short-maturity Treasury debt and use the proceeds to buy longer-term bonds:
This is what many expect the Fed to do, an action popularly coined "Operation Twist" because the goal is to bend the yield curve. Currently the yield curve shows 3 month treasury yields at 0.1% and 30 year yields at 3.2%. By selling short-term bonds and buying longer-term bonds, the Fed will attempt to flatten the yield curve. Flat yield curves generally precede economic slowdowns, but low yields across the board generally promote spending through borrowing. So in reality, "Operation Twist" seems more like rhetoric from the Fed than anything else. In any case, unlike quantitative easing or QE, the "Twist" (good or bad) can be done without increasing the money supply.
Implementation of "Operation Twist" alone should not have a large effect on the markets. In fact, that news alone would likely send the markets lower as I believe it is already priced in. The FOMC's 2-day meeting is a break from the standard 1 day meeting and suggests that the Fed has something else up its sleeve...
What else could the Fed do?
Below I have included some additional options (taken from David Rosenberg and commented on by Mish Shedlock):
-------------------------
-------------------------
Whatever the Fed announces, expect volatility. I will most likely stay away from trading the initial reaction. For me it is best to try and digest the announcement and wait for the market to settle down and give a more realistic indication of the next direction.
What I foresee is initial selling pressure that could take the markets down significantly. This will signal a buy entry for me as I believe the goal of whatever the Fed announces will be to stimulate the markets. We'll have to wait and see what unfolds tomorrow... Could be some fireworks...
I am expecting volatility following the announcement. It is a gamblers game to try and predict how the market will react, but often times the initial move is the false move and will be followed by a reversal. We already know what the Fed's longer-term game plan is. To put it simply, the Fed wants to keep interest rates low and devalue the US dollar. This is nothing new. Low interest rates encourage spending and a devalued dollar makes US exports more affordable for foreign importers. This in theory will increase employment and stimulate the economy. At the same time it will decrease the existing US debt by essentially making that debt worthless. If the dollar is worth half as much as it once was, that makes the debt only half as large as it should be. This is good for an insolvent government, but bad for its people as their ability to purchase real assets decreases.
That describes what the Fed wants to do. Now the question is what will they actually announce tomorrow?
More Stimulus in the form of a QE3 type of measure:
There are some economic conditions, at present, that could warrant this type of action. The US has seen zero job growth and flat retail sales in August. Commodity prices seem to be in a downtrend which provides additional support that inflation is not a problem. That being said, I don't see QE3 (or something similar) as an option. Expanding the balance sheet to buy more bonds will send more money into the precious metals market and drive commodity prices higher. The Fed and Central Banks around the world do not want to see the price of Gold increase further. They want to continue to deceive the uninformed public that fiat currency is legitimate tender. Depreciating currencies will eventually lead to the adoption of a gold standard or something like it and that would prevent the Central Banks from being able to print money at will. QE1 and QE2 can already be viewed as failures and launching a QE3 now would be ill-advised. It will likely happen down the road, but the time is not now.
The Fed will announce a plan to sell short-maturity Treasury debt and use the proceeds to buy longer-term bonds:
This is what many expect the Fed to do, an action popularly coined "Operation Twist" because the goal is to bend the yield curve. Currently the yield curve shows 3 month treasury yields at 0.1% and 30 year yields at 3.2%. By selling short-term bonds and buying longer-term bonds, the Fed will attempt to flatten the yield curve. Flat yield curves generally precede economic slowdowns, but low yields across the board generally promote spending through borrowing. So in reality, "Operation Twist" seems more like rhetoric from the Fed than anything else. In any case, unlike quantitative easing or QE, the "Twist" (good or bad) can be done without increasing the money supply.
Implementation of "Operation Twist" alone should not have a large effect on the markets. In fact, that news alone would likely send the markets lower as I believe it is already priced in. The FOMC's 2-day meeting is a break from the standard 1 day meeting and suggests that the Fed has something else up its sleeve...
What else could the Fed do?
Below I have included some additional options (taken from David Rosenberg and commented on by Mish Shedlock):
-------------------------
- Eliminate the interest paid to commercial banks on excess reserves (to try to spur lending).
- Announce an explicit ceiling on the 10-year note yield (say 1.5%), which the Fed has done in the distant past. Based on Bernanke's prior rhetoric, this would seem to be a preferred strategy (though the Fed relinquishes control of the balance sheet).
- Buy foreign securities (bail out Europe and weaken the U.S. dollar — talk about killing two birds with one policy stone).
- Announce an explicit higher inflation target or perhaps a lower unemployment rate target (i.e. reinforce the DUAL mandate).
- As Mr. Bernanke stated for the record in November 2002, the Fed does have broad powers to lend to the private sector indirectly via banks, through the discount window. It could offer fixed-term loans to banks at low or zero interest, with a wide range of private assets (including, among others, corporate bonds, commercial paper, bank loans, and mortgages) deemed eligible as collateral. For example, the Fed might make 90-day or 180-day zero-interest loans to banks, taking corporate commercial paper of the same maturity as collateral. Such a program could significantly reduce liquidity and term premiums on the assets used as collateral. Reductions in these premiums would lower the cost of capital both to banks and the nonbank private sector.
-------------------------
Whatever the Fed announces, expect volatility. I will most likely stay away from trading the initial reaction. For me it is best to try and digest the announcement and wait for the market to settle down and give a more realistic indication of the next direction.
What I foresee is initial selling pressure that could take the markets down significantly. This will signal a buy entry for me as I believe the goal of whatever the Fed announces will be to stimulate the markets. We'll have to wait and see what unfolds tomorrow... Could be some fireworks...
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