The SPX (S&P 500 Index) made marginal new highs Friday and this remains one of the trickiest markets I have seen in a very long time. Over the past five years, investors have been spoiled and trained, not to fight the Fed.
With QE now being tapered by 10 billion a month, investors are trying to front run the tapering being stopped, by using any bad economic numbers as good news. This has worked in the past, but the question at hand, how can they expect the Fed to stop tapering, if the stock market is near or at all-time highs?
The bad news is good news and good news is good news, is a thing of the past-or at least until we see the SPX 10-20% below the current levels. The Fed doesn’t want to continue to increase their balance sheets and expecting them to stop tapering when the indexes are trading at these levels is risky.
The economic picture has been dismal to say the least. But weather has been the primary blame for those numbers. Traders are quickly dismissing these numbers and we continue to march higher as every dip is being gobbled up.
This has the stock market in a very vulnerable place. If these economic numbers are not the direct result of the weather and the Fed continues to taper the QE program-does anybody really know where we fair value should be?
There are a lot of unknowns, but the bulls are backing themselves into a corner here. They are making trading decisions on assumptions, instead of “what is actually taking place.” The Fed is tapering and the economic numbers have not been good. Whether the Fed stops tapering and the weather was the cause for the economic downturn, we will find out in the near future and not assume anything.
I have been warning subscribers about Monday 03/24/14 being the turn day for a sharp drop. I don’t believe we are close to finished and explain why in this free report.
RELATED READING
The S&P 500: Where Do We Go From Here —a look at the ‘Great Rotation’ and intermarket clues. Article by Maria Rinehart
