Last week I said I strongly doubted The Fed would begin tapering when they met on Wednesday. I was wrong. But it didn’t matter because the market, oddly, gunned higher anyway. And when you look at the reasons why the market did that you may understand why I was right as well as wrong…
The market’s initial reaction was as my own: shock and uncertainty as the market fell. But as the market and I digested the news and read between the lines, it was clear that this was a ‘phony tapering’…
The bottom line is they’re still printing money to buy their own debt to the tune of $75 billion a month as opposed to $85 billion AND they left the door firmly open to change their minds and go back to as before or MORE if needed. In other words: the profit-party rocks on.
So why bother? Why the phony taper statement?
Because this was a golden send-off for the outgoing fed chairman- this way it looks as though he’s leaving with his work done- he saved the world from depression and as he leaves office the tapering has begun (i.e. he succeeded).
What a crock of political BS. And the market reacted accordingly:
In recent weeks we’ve talked about the ‘floor’ and the ‘ceiling’ (known as support and resistance), and I’ve drawn in that recently new floor and ceiling on the chart above.
Not only was the S+P comfortably within its new channel, but on Friday (and many seemed to miss this) it broke out above the channel to a new level, potentially creating a new floor.
We’ll see what unfolds next, but this is a bullish sign. If the market saw The Fed move this week as a true tapering, why did it react this way?
And homebuilders and financials are looking like the beneficiaries. Let’s take a look at the ETFs for this group of stocks. First homebuilders:
Forming an ascending triangle- a bullish formation. The same goes for the financials ETF:
You can see that ETF break above the ceiling there, similar to the market, so keep an eye on these two groups of stocks.
The market is having its Xmas party, and I don’t advise getting in the way of that. Party on…
Best,
Jim.
