Thank You Santa Fed and Happy Holidays

All the hedge funds and money managers went to the Santa Fed and asked for some help on the year-end rally. The concern over oil has been displaced by the thought of a dovish Fed allowing more time to hike interest rates. What that has to do with the real worries near term in the market is irrelevant this is all about the rates holding steady for the next 4-6 months… Wow, wasn’t that the guesstimate before the FOMC meeting? But, it’s different after the meeting than before the meeting… got it. There is no rationale for the move, it is a result of news (albeit known) that made money push back into the sectors and indexes it has exited from the last week. This is what we stated in the update last night… emotions are in play as uncertainty works in both directions… the last two days have been on the upside.

Markets¬†gap open and money flows in on the Fed comments. Two days of help from the Fed and we are pushing the previous highs. Plenty of talk about the hedge fund buyers and the desire to get their numbers up going into year end. If there is any truth to that the upside is in play and the outlook is bright. But, this is the same market that was worried about the impact of the energy price destruction. That didn’t stop, today crude drop 4% into the close and below the $54 mark. There was a small after-hours bounce, but still no bright spot relative to oil prices. The traders are in control for now and this could very well run higher into the year end tally. All the major indexes close with gains of better than 2% on the trading day and the upside is in play on the pivot point move off the Tuesday low.

The ten-year bond bumped to 2.2% and up 16 basis points the last two days as investors decide they like stocks and are buying. The movement to bonds has been an indication that investors are looking for safety or a hedge to their portfolios Does this mean the move is over and all is well with owning stocks? Time will tell, but if the selling in the 20+ year bond ETFS, TMF or TLT are any indication, the downside may be visited short term. Yield on the thirty-year bond moved to 2.81%, but still long way to go back to 3%.

The NASDAQ closed up ¬†96 points on Wednesday, and follows that Thursday with a 102 point gain and back to the 4746 mark. Remember the closing high was 4791 November 28th¬†. Gap open made any entries difficult, but for those who bought at open were¬†still up another 0.7% from that point. I didn’t take the trade on the gap open and still watching for now for the break through the previous highs to validate sustainability short term.

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The S&P 500 index closed at 2061 gaining 47 point on the day. This follow through from the pivot was great as everyone now likes stocks. The Fed magic at work again. Is it sustainable? Based on this activity you would have to say yes. Based on the reality profit taking looks good on short term positions. Pivot point reversal confirmation today puts the index in play on the upside. Gap open made entry difficult for our view and we are watching to see how it unfolds. Break to new high could offer more opportunities going forward.

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As we discussed in the webinar on Tuesday night if the rotation to the downside were to reverse it would need an event, catalyst or news to stem the downside acceleration, and the FOMC was part of the reason, oil holding near $55 was part of the reason and Russia becoming proactive towards the ruble was part of the reason… The next question is sustainable or temporary? For now I am going with temporary backed by some hope that the upside move¬†will improve the longer term view for investors, but hope is not a trading strategy, thus I am going with temporary and that leads me to short term windows versus longer term horizons. Shift in trading strategy currently to account for the volatility and uncertainty that is becoming sustainable short term (0-13 week outlook).

The Russell 2000 index was up¬†4.8%¬†the last two days¬†leading the indexes higher and setting the bar for other to follow. We have discussed the move in this index the last few¬†days showing signs of wanting to bounce and it did just that Wednesday and followed through on Thursday. Because there was nothing more than a hunch on my part we couldn’t trade it, but it did follow through and is now at 1191 above the 1190 resistance. There is a trade on the confirm break above the 1190 level today.

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The Volatility index jumped to a high of 25.2 Tuesday and reversed to 16.8 on Thursday. The swings are getting bigger and Wednesday was a news driven move that could take the immediate uncertainty out of the market. Thursday was a nice follow through to take the emotions out of the trading. The move in SVXY has been positive with the reversal, but it is struggling to gain any respect from investors as a legitimate trading opportunity, but the S&P 500 index is moving higher.

Bottom line… uncertainty reins! Plain and simple we can all put forward rationale for the activity up and down the last three weeks, but they all come back to the lack of visibility going forward. The worries are big enough to stall action in both directions and allows the control to shift to the traders. This creates volatility day to day based on the mood swings. The best course of action is watch, manage your risk relative to the time horizon and keep your stops at the level of risk you are willing to accept. One day at at time.