Unwrapping Today's Event

A very interesting day in the markets. Sort of a head scratcher. First, let me give my caveat that I really don't know. Not a terribly strong opinion on where the market is headed unlike last week where I was selling stocks that I had been waiting to sell. In general I thought today was pretty bearish. The market seemed to be offered every excuse to go up and all we got was a big post Fed reversal. Even with this reversal, the NASDAQ finished up 1.5% and the S&P 500 managed an up move of .65%. The Dow was down but that was mostly because of Boeing.

As I flagged earlier, I didn't believe the breakout this morning. There was no volume and it was obvious that it was just computer buy programs. Also the dollar started inching up after being down early this morning. Volume picked up after the Fed announcement but even with this pick up the markets still finished slower than yesterday and on Monday. This is net bearish as the weak bounce, after the big sell off on Monday, cannot attract more buying interest. Yet, I was really disappointed with the sell off after the Fed announcement. It drifted down but I thought there was a good chance for a true sell off to materialize and pick up speed at the end of the day. It never really happened.

If your bearish, the Fed statement took out tail risk of a massive move up. The Fed played it safe and took no major risks in doubling down their efforts to keep yields down. The fact that the 10 year yield went up after the announcement was very interesting. As bearish as I am, I am still very nervous about all the liquidity in the system. I am a fundamental guy and fundamentally I want to bet big against the market but many bearish funds have gotten their head handed to them the last three months because they don't understand how the government can flood the economy with liquidity and create valuations that do not make any sense. Unfortunately, because of the way you have to manage your risk, being bearish is much more technical in nature than being bullish. Being bullish, a drop of 50% means you can buy more. Bearing bearish, a doubling of the stock means you can't short more. In fact you may be forced to cover even if you know your right.

To sum up, I thought today was bearish but not as much as I was hoping for. One thing is for sure. The market cares more about the trend line (this was around 910 to 911) coming down from the 950 highs then it cares about other technical levels like 903. As a result, if we hit 910 tomorrow my guess is we will be going higher because that means we will have broken that trend line. A push tomorrow, say up less than 5 in the S&P, I would also read as bearish.