Repeating The Fade

If you look at yesterday’s chart, and compare it to the one shown above, you will see a virtual mirror image of market activity, reflecting almost the same highs and lows in the S&P; 500.

The markets crept higher in the early going, supported by better than expected November retail sales, but sold off after the Fed announcement. There were no earth-shattering news other than that the Fed will continue with its program to boost the economy via Treasury purchases. The official reason is that the pace of the recovery remains so slow that additional stimulus is warranted.

Subsequently, the dollar rose, energy and metals slumped, and the markets headed south, however, the day was saved by a last minute comeback and a close above the unchanged line.

While the Fed conceded that there has been a little improvement in the economy, growth has not been sufficient to bring down unemployment. Nevertheless, business and household spending along with manufacturing and a reviving auto industry are showing small but positive developments.

The Fed reiterated its firm stance that it will employ all tools available to further the recovery and prevent deflation from spreading. Whether that will actually play out this way remains to be seen.

The stock market has already discounted a recovery in the upcoming months, which is reflected in current prices. There is still confusion as to whether the Fed intended for interest rates to rise, or if it’s a sign of failure that the Quantitative Easing program has not been working.

On the other hand, some believe that because of economic improvement, no matter how small, rates have spiked reflecting growing strength.

As usual, there are more questions than answers; so follow the trends, track your stop loss points and try not to figure out all of the fundamentals; it’s impossible to do.

About Ulli Niemann

Ulli Niemann is the publisher of "The ETF Bully" and is a Registered Investment Advisor. Learn more
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