29 Jan

What happened at the POST FOMC meeting – 28th Jan 2015

Art Cashin gave a explanation of what happened post FOMC last night.

Stock Market Plays Vertical Pong Until FOMC Drops A Safe On It – Buoyed by Apple’s stunning world record corporate revenues, stocks roared out of the box on the opening bell.  Then, instantly, stocks began to diverge.

The Nasdaq eased back from the opening high, quickly followed by the S&P.  The Dow, however, kept inching higher until 10:15.  Then it too joined the others in easing back.

In mid-morning, I sent this note to some friends:

The market fade did not appear news related although angst about Greece is building.  They paused at minor resistance and it was like a bell rang.

Just as shareholders once pressed airlines to hedge fuel cost risk, they may now press multi-nationals to hedge currency risk.

Will be at an off-floor meeting between 11:30 and 12:30.

When I returned from the meeting, I saw that the Dow had rallied back near the morning’s highs.  After some investigation and consultation, I sent this follow-up:

Market continues to be self-absorbed.  Some traders point to judge’s Fannie Mae comments for bounce but general sense is that when they held at an intra-day double bottom at Dow 17,360 (circa 11:45), the rally mode kicked in.

The run rate at 12:30 projects to an NYSE final volume of 750/830 million shares but post-FOMC action could change that.

(The post-FOMC trading did swell volume slightly to a final total of 856 million shares.)

As we headed for the FOMC announcement at 2:00, stocks crawled back to the upside but only the Dow made it back to the morning highs.  Given the symmetry of its intra-day chart, the Dow became the focus of traders’ attention.  At 1:30, I sent this follow-up along:

Double Your Pleasure!  Double Your Fun!

We bounced-off the mini double bottom in the Dow, only to temporarily stop at a double top (circa 17480).  Maybe trimming exposure as FOMC statement nears.

Prices backed off a bit going into the statement release.

When the statement hit, the stock market embarked on the now apparently mandatory 15 minutes of frenzied zigzag trading.

Initially, they shot up, taking the Dow back to, and very slightly through its earlier highs.  After the initial brief frenzy, stocks eased back and made a lower low around 2:40.

They then made a brief but futile attempt at a rally.  When that failed around 3:00, things really turned ugly.  Stocks fell in an almost vertical line.

Meanwhile, over in the treasury market, a sharp rally broke out, accelerating as it moved through some key technical mileposts.  The bond rally countered those who maintained that the stock selloff was caused by the hint of a looming hike in the FOMC statement.

Many traders felt a big contributor to the stock selloff was renewed weakness in crude, which threatened to break down out of the rectangular basing formation that it had appeared to be forming. A WTI move below $43.50 could herald a new leg down.

Is Europe At A Key Crossroad? – In Greece the per capita income is now lower than it was before they joined the Euro zone years ago.  The same is true of Italy.  The grand experiment is looking less grand each day.

Stratfor founder, George Friedman, opined on stresses on the Euro zone in a recent piece.  Here is a bit:

There are then three drivers in Europe now. One is the desire to control borders — nominally to control Islamist terrorists but truthfully to limit the movement of all labor, Muslims included. Second, there is the empowerment of the nation-states in Europe by the European Central Bank, which is making its quantitative easing program run through national banks, which may only buy their own nation’s debt. Third, there is the political base, which is dissolving under Europe’s feet.

The question about Europe now is not whether it can retain its current form, but how radically that form will change. And the most daunting question is whether Europe, unable to maintain its union, will see a return of nationalism and its possible consequences. As I put it in Flashpoints:

The most important question in the world is whether conflict and war have actually been banished or whether this is merely an interlude, a seductive illusion. Europe is the single most prosperous region in the world. Its collective GDP is greater than that of the United States. It touches Asia, the Middle East and Africa. Another series of wars would change not only Europe, but the entire world.

To even speak of war in Europe would have been preposterous a few years ago, and to many, it is preposterous today. But Ukraine is very much a part of Europe, as was Yugoslavia. Europeans’ confidence that all this is behind them, the sense of European exceptionalism, may well be correct. But as Europe’s institutions disintegrate, it is not too early to ask what comes next. History rarely provides the answer you expect — and certainly not the answer you hope for.

Consensus – Oil will be closely watched to see if we’re breaking down out of a base.  That would not be a good thing.  Will the ten year move closer to Barry Habib’s target of 1.62%.  Greece has calmed a bit this morning but the close is still hours away.  Stick with the drill – stay wary, alert and very, very nimble.