Darshan's Blog

Darshan's Daily Market Ponderings

Wednesday 25th November, 2009

FOMC Minutes Signal Lows Rates For 2010

Afternoon!

So midway through the week and we have literally moved nowhere on any of the markets - just back and forth. Everytime, a move looks like it is going to happen (in either direction) - a range is held and the dip buyers either step in or the resistance sellers step in. Even if we closed down on all the indices yesterday, it was still a highly boring day. In essence, we are stuck watching the world's most boring tennis match, only because we know that whoever wins - will go on to play the very exciting final.

On that note - the FOMC Minutes releases yesterday revealed that Bernanke and his Merry Band of Clueless Soldiers, are forecasting an umemployment rate of 9.5% in 2010. Of course, this causes the yield curve to shift lower, as bond investors figured that rates and general monetary policy will stay dovish throughout 2010. Of course these minutes were released at the same time as the headline "FED Believes Zero Interest Rates May Be Fueling Undue Risks In Markets" - well I have no words - have these geniuses suddenly woken up to the obvious?

Without statements like this, investors simply do not have faith in the FED it seems and this can be no good thing. Even if the USA Prelim GDP data came out in line with expectations yesterday and Unemployment Claims surprised with only 466k claims vs 500k expected, the fact that the markets are still struggling to hit new highs, is worrying.

Today we have had a mixed bag of data with month on month personal spending increasing by 0.7% but personal income remaining at 0.2%, along with Durable Goods Orders dropping by 0.6% vs 0.5% increase expected. The market does not know how to handle the avalanche of mixed messages, nor does it care; Most of the traders have now gone home to start the Thanksgiving holiday and so what is left is a very bizarre situation. What is it?

Well first of all, the USDX has made a new low but still staying above $74 as expected AND yet the indices have NOT made a new high. Nor has oil. The only thing making a new high is Gold and even that has not exactly rocketed - despite it having the opportunity. In addition to this, the Dax has a lower high and the banks look horrible (in the US). The SPX, the Russells, the Transports - have all failed to keep up with the Dow's advance and have not shown much courage today - when they should be flying with the dollar moving to this new low.

Overall, we have what can only be described as a very weird situation where all this is happening during a low volume weak, where the traders are generally on holiday. What can we make of this? Well, to me it says that the markets could roll into next week, especially as the USDX approaches strong support regions. To me, it says that the markets know that the USDX is approaching strong support regions and perhaps are too fearful of going long, incase we get a sharp short-covering rally on the dollar. We are at a crossroads but I still expect the same script as I stated the last two days - a move lower towards 10200 or 10050 and then a bear trap induced rally towards new highs. However, I don't know if this will happen this week or next - it makes more sense for the bear trap to be layed on low volume and for it to be sprung into action when everyone returns from holidays next week. On the SPX we have support at 1100 and then 1086 - below there would open up a world of hurt for the bulls. So just as always, watch out for a bear trap, folllowed by a rapid rise - the bull trap and then the ultimate decline sometime in December or January.

Of course, nothing is ever 100% predictable. All we can do is spot the weird situation we are in with critical points coming up in all the markets, prepare all scenarios and react accordingly. As I said on Monday, you're better off, not trading this week - you'll only get caught up in the grind. Better to wait until Monday and see where we stand.

So go enjoy yourself and have a very happy Thanksgiving holiday. I'll update tomorrow - only if something important happens.

Darshan

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