[Chart courtesy of MarketWatch.com]
One uncertainty factor was removed from the markets today as prospective Fed Chairman Summers called it quits before a two-day Fed meeting scheduled to start tomorrow. The markets took this as a positive, and the rally was on.
The Dow and S&P 500 gave back some of their early gains but managed to close solidly on the plus side while the Nasdaq slipped and ended slightly in the red. The reason for the early euphoric reaction was the fact that Summers might tighten financial conditions more than main rival Janet Yellen would, who now appears to be a shoe in.
The S&P 500 has now rallied nine sessions out of ten during this month and today we breached the magic 1,700 level to the upside again but were unable to hold it. We are now close to having recovered all losses sustained during the August sell off.
All eyes are now on the Fed meeting and how much “tapering” (stimulus cuts) will be announced when the conference results are published on Wednesday. The markets had plenty of time to get used to the idea of a reduction in the QE program, since the Fed hinted at this possibility back in May.
The markets expect a cut of some $10 billion a month from the current $85 billion. If that number is confirmed, we might see a relief rally with a possible close back above the 1,700 level for the S&P 500.
With Janet Yellen now being at the forefront of becoming the next Fed chairman, the expectation is that she will be a carbon copy of Bernanke in regards to continuing current Fed policies.
In the meantime, our Trend Tracking Indexes (TTIs) headed higher with the Domestic TTI closing at +2.61% while the International TTI ended the day at +6.88%.