There is no other way to say it, folks. He did something today that is truly historic, and will be talked about for a long time to come. He had initially made it such that interest rates would be near zero through mid-2013. Today, he wowed us with an extension of no less than eighteen months, as he said, interest rates will stay near zero through the end of 2014. At least!! He’s hinting it could go far beyond that. What he, basically, did was to encourage people of this country to go buy adjustable rate loans at very low rates, so that the economy could become more deeply stimulated. A way to get the economy to grow. It’s a quiet way of doing a QE3 program without announcing one. In addition, if he keeps interest rates very low, people will be more interested in putting their money in the stock market which of course creates wealth. Wealth creates a stronger economy, of course. Very slick move by our fed leader. He’s working hard at keeping the market up. That’s what he’s always working on. Keeping the stock market higher. It really is historic folks. To make money so accessible for such a long time is unprecedented. It’s an act of desperation, but it is what it is.
This is about what the market thinks about it, and not what we think is right. It’s scary to think about what made him make a move like this. Does he see something that we should be scared over? Just how desperate is he? It makes you wonder if he thinks Europe is about to tank. Bottom line is this kept the market moving up once the news came out. Nothing spectacular, but up, nonetheless. Very close to breaking out over that difficult down trend line that comes in roughly at 1325 on the S&P 500. The market is overbought on the Nasdaq, and close on the other major indexes, but the bulls have 1325 right in front of them. Let’s see if they seize on the moment, or if they have to wait on some selling to unwind overbought before possibly making the move up and out.
Commodity stocks got somewhat of a green light today. Hard to say otherwise when you think about it. If you go out of your way to stimulate the housing market, and other sectors of our economy, you will have to use goods to make those houses, etc. That means commodities should be in demand, and, therefore, higher prices are ahead for them. This would suggest that the commodity world is likely to do well for some years to come with its pullbacks along the way, of course. It’s hard to imagine any other sectors within the stock market having more of a go signal. The fed is trying to juice inflation, because, clearly, he’s afraid of deflation that could ensue should Europe go belly up. Go where the demand will be greatest, makes the most sense to me. If he succeeds in creating more inflation, commodity stocks should trend higher in the coming years. Again not straight up. Higher overall.
Financial stocks should, also, do well if his work creates more loans from new investments, and from housing. Interesting times, for sure, but I would think unless the market just tanks because of Europe, commodity stocks should do just fine. The market is overbought, and that should be taken seriously. There is no reversal candle as of yet. Remember, that overbought is not a sell signal, but rather, a sign that a pullback is out there, but timing it can be difficult at best. RSI’s can stay overbought a while longer than most think possible, or it can kick in immediately. No way to know for sure, but we know that we don’t want to get aggressively long right at 70 RSI’s. It also tells us the market is far more healthy than the average bear would like to believe. You don’t get to 70 RSI’s unless things are being looked upon in a favorable way by the majority of traders. With the feds’ actions today, I would be looking for selling to buy in the commodity and financial areas, especially the commodity world. Some of those stocks will pull back a lot less than other stocks from overbought. Watch the 60-minute short-term charts. When they sufficiently unwind, they won’t get oversold very often now, you align it with good patterns on the daily chart and buy. RSI’s aren’t likely to get below 50 on the daily charts as things pull back until a real strong selling episode kicks in due to some unexpected bad news. For now, 50 or higher is where you’ll see daily charts finish selling from overbought. Adjust accordingly.
The market closed right on the down trend line that breaks this market out. It’s closing at 1325 with 70 RSI’s, thus, if we do go higher for a bit longer it’s likely to fail before getting too far above this key breakout level. 1340, or so, is possible, and it’ll feel as if we can’t sell. We will. Trust me, we will. It always happens when you get this overbought. Basically, no exceptions over time, although we can stay overbought longer than many think possible. At some point, the higher we go first, there will be a snap down to unwind things. 1292 is great support followed by the line in the sand for the bulls at 1267. 1325 and then 1340 is resistance. You should be participating in this market, but try to be careful how and where you enter. Buy the best sectors as we discussed in this market environment. Use weakness to buy. Let the 60’s unwind and align it with the daily charts.
One day at a time, folks. I think the fed has lit a match under the commodity world as your best sector to focus on for some time. Play the whole market as opportunity presents itself, but do allow a heavy focus on the commodity stocks.
Peace,
Jack
