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Fed Blows It....No Confidence...

As the Byrd's wrote a long, long time ago. There is a season, turn, turn, turn. The fed had been on a long term zero policy rant and refused to raise rates even a quarter of a percent due to the fears of a global slow down. The stock market fell in love with the idea of zero rates since it meant there were few other places to use your dollars with the ability to make any real other dollars. On and on it went. Week after week and month after month. The fed had some decent reasons to hold near zero but as things got slightly better she still refused to give that first rate hike which for the masses meant she believed things were really getting better. Her refusal to do so while things were seemingly getting better made most realize that the fed thought any short term economic strength was not sustainable. That thinking was correct as we recently saw China print a sub 50 reading on their manufacturing which signaled recession. Not only that we saw our own manufacturing number fall to 51 after hitting near 58 at its highs. Things clearly are not improving. So yesterday came and the masses were again hoping for some confidence to be shown by our fed leader who always wants those 401k's to go higher. Give us a rate hike the market was saying. Tell us things are truly improving in our economy and hopefully abroad as well but especially our economy. She didn't deliver the goods. She didn't raise and the wording about the global economies and even our own economy were disappointing. Weakness a word used far too often for anyone to be happy about. If things really aren't improving then stocks are over valued. Sell! Today we sold. Late yesterday we sold. No confidence equates to not much on the positive side for stocks. I believe strongly and stated many times before the report came out that I thought no rate hike would be a negative for the very first time. Sadly and unhappily I was correct. A rate hike is very much what the market wanted but did not receive. The poor action from late yesterday through today a reflection of her lack of confidence. If the fed doesn't like what she sees then we shouldn't either and who can blame anyone for believing that. So today we saw a big gap down that was left open and thus caused technical damage which isn't good for the bulls. We now have to adapt to what we see and that's to be even more cautious in the short term. Just too much technical damage created by today's action across the board after most major indexes and sectors stalled off 50 EMA tests as seen in the SP 500 and Dow charts below. Do what feels right to you but for me it's about capital preservation. No fun time is back yet again.

S&P500 Daily Chart

Dow Daily Chart

The market certainly has a chance to retest the old lows but before we get there we have to remember that we are dealing with short interest that's completely off the charts. The fear and pessimism has risen dramatically over the past several weeks to months and that is a good thing if you're bullish. If you're bullish you at least want to see folks getting dark emotionally as things falter. No lack of that around the market these days. The bull bear should still be around zero after today's poor trading so we have nothing to worry about in terms of getting out of the emotion of fear. It's here to stay for quite some time. Even if the market improves there will be a lack of confidence amongst traders thus froth isn't anything we'll be seeing for a very long time to come. Once the masses have made friends with fear due to losses in the stock market, it takes a long time to have the desire to get back in the game or to believe things will get better even that process has already begun. It won't be accepted. It won't be believed. All of this will help the bullish case down the road. Now we have to learn as we go based upon the usual price/oscillator relationship. We can always retest the lows or go lower than that but fear says things should not get out of hand on the down side. Time will tell that tale.

Rough action in many sectors after the release of the Federal Reserve decision. The Banks fell by close to 5% as seen in our chart below:

Banking Index Daily Chart

The Transports reversed lower after a bounce back into its 6 Month Downtrend Line seen below:

Transports Daily Chart

This is a time to think about safety first and gains last. The gap down and run today leaving the gap wide open is not bullish for the near term. It created a lot of technical damage. Just getting back through this gap will take a tremendous amount of work by the bulls. They'll need a catalyst and now their main source of something to that effect, the fed, is not there any longer. She has made her bed with the zero rate policy and isn't likely to reverse that decision any time soon. 1867 needs to hold on any back test. If it doesn't, we can see 1800/1820 very quickly. If that does indeed take place the damage technically would get far worse than it already is. These aren't the best of times for the bulls but at least pessimism is ramping to all time levels so they can hang their hats on that for the mid term. One day at a time as always. A dangerous market so please be careful.

 


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