This should not have come as a surprise to anyone. We’ve talked many times about the fed and the role of playing the savior. Not on my watch approach. He knew that if the Eurozone fell apart, so would our markets, and thus, the concerted effort with the world central banks to supply massive quantities of liquidity to help Europe out, and keep the financial system humming along for at least a little while longer. Outside our own back yard, the fed convinced England, Switzerland, Japan, and Canada to join in, and save the day. They agreed when they were made to realize that if the rest of the world goes down, so do each and every one of them. No one would be safe from the financial carnage that would take place. Not too tough a sell.
So the world joins in. A concerted effort is made to bring liquidity to the world, and all is well. That’s not really the case, but for the short-term, it gives the smartest minds around additional time to try and figure out a solution to what ails the world. They have been unsuccessful so far, and thus, the reason for the inflation trade today, but they will continue to try to work out a solution that isn’t upon us at this time. Hats off to the efforts, but ultimately, I don’t think this was the best approach to take. My opinion is meaningless. It doesn’t matter. The market, as one would expect, loved it. Now, the question bigger picture is what will this massive amount of liquidity do to the markets ability to move higher with force. More on that later. The fed did his deed today as he tried to save the world equity markets. As they say in hockey, kick save and a beauty.
The financials led the way today as you’d expect. They are clearly the biggest beneficiaries of today’s fed action. (Goldman Sachs (GS), Morgan Stanley (MS), American International Group (AIG), Wells Fargo (WFC), U.S. Bancorp (USB), JPMorgan (JPM), and other financial institutions had a great day today.) Massive quantities of free money will do that. The inflation trade also helped the commodity world quite a bit, although gold and silver did under perform in a big way. Those trades being full.
The bubble has already popped on Silver. Is gold up next Gold should have exploded today. It barely moved up based on this type of inflationary news. Makes you wonder. The overall market participated in one way or the other. The internals confirming the move, and a definite follow-through from Monday’s big blast higher. I’ve spoken many times about how essential it is for the internals to confirm a move of such magnitude. If they don’t, it puts the entire price move in question. Fortunately for the bulls, they got what they needed from those internals, thus, today counts as a real win for the bulls. Hardly a place for the bears to hide today. No safe trade for them. They basically just covered some portion of their short plays and moved to the sidelines. A solid day all around for the bulls thanks to intervention, which, of course, is fine with them.
The S&P 500 took out some very important resistance today. There was a gap top at 1215, and also, the 20- and 50-day exponential moving averages at 1212 and 1215, respectively. The only way those levels would go to those levels would be on a gap. So many key resistance levels at the same price require big gaps. We got it today, so now it’s about clearing the 200-day exponential moving average at 1233. Clearing it with force, not just by under one percent.
We did not accomplish that today, and so the bulls still have their work cut out for them before they can feel a bit safer about things. 1195 on the S&P 500 was yesterday’s previous close. This level should act as very powerful support on any selling to come to unwind overbought short-term oscillators. It wouldn’t be great action if 1195 started to erode away. We’ll have to watch it closely for more insight. Technically, today’s move is a positive. Clearing that key 1215 level was huge. It would be best if that level held any selling until we can try higher. Good action from the technical side gives the bulls hope, but above 1233, we have to deal with 1265/1275. Nothing will be easy for either side from here as there are now two big open upside gaps for the bears to have to deal with.
Japan tried this eleven times, and it still ended up with an 80+% bear market. Quick fixes led to huge rallies, and then failure. Today’s concerted global effort does not end the problem. It buys time, but it’s only a bandaid and not a solution. Ultimately, a solution will be needed to allow these markets to go appreciably higher over time. No solution likely means no bull market. You still need to be defensive until we can blast through to higher levels that tell us the worst is behind us. We’re a long way away from that reality. The market has more of a favorable tilt short-term, but it’s hard to know how long that can last. We watch the charts and let them talk to us as the weeks go by. I would not get overly bullish despite the efforts made on the world’s financial behalf. Take it slow and easy as we watch for signals from both sides.
Peace,
Jack
