Darshan's Blog

Darshan's Daily Market Ponderings

The Ineptitude & Greed of the Fed

Wednesday 11th November, 2009

Morning all! So another day, another dollar. We can see the dear old Fed is determined to keep lighting the fire that is keeping the markets up. Yesterday, the Federal Reserve Bank of Dallas President Richard Fisher, said that he was not concerned about the dollar weakness and understood that the Fed's policy of keeping interest rates low for an 'extended period' was hurting the currency. So essentially this translates to "We know we're keeping the markets up by damaging the dollar, but we do not really care about our currency - it's only paper right!". What an admission hey! They are getting themselves involved in a dangerous game and it's not going to end well. All artifical price moves get busted someday. In the meantime, the more the Central Bankers admit that they are willing to inflate asset classes by pumping a bubble full of dollars, the market will rise to meet their promise.

Just look at the markets yesterday; We got that quick 50 point sell off from 10250 on the Dow yesterday but it was quickly bought back by the dippies and we rocketed back up. Overnight, the ramp has continued and since the Banks are closed for Veteran's Day today, I expect a fake rally to close the gap at 10333 (As mentioned yesterday). We have hit the target during the futures just now but we need it to be hit in the cash session too. On this side of the Pond, the FTSE 100 has just triple topped at 5300 (I am now scaling in short on that index).

So why am I now happier we are getting close to the end of the bear trap sprung two weeks ago? Well - the SPX has now been up 7 days in a row and it still has not made a new high for the year, The Dow is close to filling that gap from the 2008 crash, the USDX is holding above the crucial 74.75 level and I think the bulls are getting to comfortable buying the dips again. What we have is a classic broadening topping pattern - the same as May to October 2007. So my targets for the final top at SPX 1121-30, Dow 10500-600 and FTSE 5300-5500 still stand but in the meantime we are going to get strong swings up and down. Today I am expecting the markets to close gaps from last week and so have a short bias.

Of course, during these corrective periods in the market, it is hard to get each day's direction right...so if you are playing long term then wait until the above upper targets are hit and then go short. I would not bother going long up here for a couple of hundred points - it would be suicide. Just be prepared for the swings and keep your powder dry. Plenty of opportunities coming up in the next few weeks.

Again, a short note today - I could go on crticising the Fed all day but hey, what's the point. Seems we were led into this mess by ineptitude and greed and we are being ushered deeper into it by the same forces.

Play safe and happy trading!

Darshan

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