Today is all about the FOMC meeting concluding and Mr. Bernanke drooling about what the Fed will do to right the economic ship. What will that be? That is anyone’s guess. Whatever it is, it isn’t likely to please investors overall. The promise of lower rates, the commitment to keep the money supply in place, and be accommodative to allow for the economy to fully recover. Sounds good, but in reality does nothing to spur growth. I am not of the opinion that QE3 will get enacted now or soon. The markets continue to do well with the stimulus provided, thus there is no financial reason to push the issue short term.
If the Fed doesn’t act directly to feed the beast what will be the response by investors? Initially negative, but longer term it will be seen as a positive, as there is always the next meeting that stimulus could be provided. If the market reacts on the downside, be patient and look for the opportunity. The offering of more stimulus will not taken off the table it will just be delayed to a later point. Thus, be a patient investor and look for what opportunities the Fed’s comments will bring.
If we get more stimulus avoid Treasury bonds. A look at the chart of IEF and TLT show the near term reaction to the opinion building that stimulus is coming. Thus, trading the short side of the bond on more stimulus offers opportunities. Volatility is likely to pick up and commodities prices will rise offering opportunities in that sector. Inflation is always a threat following stimulus as well and that would lead to the precious metals continuing higher. The point is watch what will benefit from more stimulus and own it, and likewise, know what will not and sell it.
Apple gets all the headlines on Wednesday, but the stock is stuck in neutral for now. Closing at $669 on Wednesday up 1% on the announcement. The bounce expected was more, but buy on the rumor… sell on the news was in play. The reality however, is the new products are released just in time for the holiday shopping season and will more than likely provide a solid boost to the stock price going forward. The company is fundamentally sound, reasonably priced relative to forward earnings, and still loved by investors. Up would be the logical direction short term. Technically the stock held the $656 support and closed at the 10 day moving average. A move above the $680 level would be positive, and a break below $656 would be negative. The uptrend is still intact and for the patient investor there is opportunity.
Facebook was in my notes on Wednesday relative to the rise off the recent lows. The move above resistance put the stock back in play as buyers were anxious to own the stock following Zuckerberg’s comment relative to the mobile version of the social media software. The iPhone 5 announcement on Wednesday from Apple only solidified this talk as Facebook is built into the phones ios6 software. Thus, the immediate target of $22.35 is in sight with the $26.80 level a very good possibility. This stocks is far from being clear sailing to the upside. There will be plenty of volatility, but the worst may be over for now making the stock worth considering.
The dollar is not loved and continues to move lower. The euro is benefiting from all the talk about the ECB stepping in and offering support and defending defection of countries with sovereign debt problems. Apparently all Draghi and the ECB have to do is talk and the markets respond. The bounce in all European assets has been evident since his announcement to defend the currency in early June. The longer term proof is still the big question mark, but for now the investors are willing to buy at what they consider a bargain basement price.
Plenty of risk still on the table and we have to be disciplined in how we manage every position, but the trend remains to the upside for now. Put your stops in place and keep looking forward.