Headlines are always fun for me! The assininity (I made this word up) they portray and the lack of depth in reality is always fun, not to mention the statements to the obvious. This weekend and today even, there were plenty of references to the downside risk of the markets currently. I am in agreement with most of the issues surrounding the economy, jobs, Washington DC and most other fundamental issues. But, we are all forgetting one simple thing… the Fed is still willing to pump 85 billion dollars per month or 1.02 trillion dollars per year into the markets, oops I mean economy. Until that stops the “bubble-blowing bull market” (one headline title) will continue to find reasons (1.02 trillion of them) to continue higher. Yes, all the fundamental data matters… eventually, but until the water that is priming the pump goes dry, the markets will keep flowing.
The talk of stimulus cuts the last two weeks has kept the broad market in check and today was no different. After starting higher, the markets drifted lower into the close closing back near even on the day. Three Fed Presidents spoke today and they were positive about cuts in stimulus. Those were the final words from the Fed prior to the FOMC meeting next week on the 17-18 of December. Will they cut? It is time to do something with the only question being how much they do… one thing is for sure, it will not be 85 billion dollars. One analyst stated today not to fear the Fed as the rally on Friday shows that the Fed actions are already priced into the market! I would not be so sure of that, but we will see how it plays out next week following the FOMC announcement.
What ideas make the most sense moving forward in this market environment? From my view the best approach is to focus on the technical data versus the fundamental data to attempt to contain any confusion. What I mean by that is simple, when we read all the problems facing the US economy looking forward we forget it will take time for the impact to outweigh the positives and the money dump from the Fed. Thus, our emotions lead us in one direction while the market trend heads another. The micro trend of the broad indexes are up and consolidating. The short term view is up as well as the intermediate and long term trends. Thus, don’t allow your micro term views to cloud what is taking place longer term in the market trends.
Gold was in the headlines again in reference to the metal moving higher short term. As stated above let the technical data decide as the fundamental analysis is full of emotions and uncertainties. The price is basing near the $117.30-120.80 level, thus a move above $121 on GLD would be a tradable break of the micro trendline. A target of $125 would be reasonable relative to the upside potential and a stop at the $117.20 mark on the downside risk. This is one headline that offers a idea for making money short term.
Natural gas is another commodity in the news. After breaking above the $19.75 resistance the upside has continued through the 200 DMA and $21.25 as the next target on UNG. The ETF for the natural gas stocks (FCG) has not responded in kind to the move in the natural gas commodity. Thus, it would be worth watching as a lagging indicator for the commodity. If the price in the stocks begins to move north along with the commodity it should offer reasonable reward relative to the risk of the trade. Track the idea going forward.
The current developments in interest rates is putting downside pressure on bonds. The 30 year yield on Treasury bonds has risen to 3.92% and a move above 4% would continue the negative outlook for the sector going forward. This in turn has put pressure on the balance of the bond sector as we noted in the weekend update that BND had broken support at $80.45, but managed to move slightly above that level in trading today. This has been a sector under pressure, but watch to see how it responds to the FOMC meeting results relative to cutting or not cutting stimulus. TBT is the short Treasury ETF and TLT is the long Treasury ETF.
There is plenty happening in the broad markets as well as the global markets. The economic data was positive from China again today on exports, but FXI was down 0.7%. Economic data from Germany was negative and EWG was higher by 0.2%. Sometimes what sounds good today does not translate into gains. Watch the global market opportunities going forward. There are still plenty of analyst who like the outlook. Time will tell and the trends will shift. All we can do now it continue to take it one day at a time.