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Tuesday, September 17, 2013

Daily update 9/17

Another up day.  I was a bit surprised with FED day tomorrow.  I thought it would likely be flat.  Here is the daily SPX chart.

SPX closed about 5 points below its all time high set back in Aug.  However, it was slightly below yesterday's high so it did not tell us anything new.  There were only 154 new highs today.  An up day like this within spitting distance of an all time high should have seen at least in the mid to upper 200s.  Curiously the VIX closed higher again today.  It would appear that some people are loading on puts the last two days.  Is that smart money or dumb?  I guess we will find out tomorrow.

The long awaited FED announcement is on tap for tomorrow.  Near as I can figure the majority of people expect a $10-15 billion tapering of QE all in treasuries.  Any other variation is likely to be a surprise to the market.  A surprise has not been Bernanke's style as head of the FED.  There seems to be some concern on what the FED will say on interest rates.  They have routinely been pushing out the length to expect rates to stay low.   Some people think extending that out to 2016 may be problematical due to the FED's own economic forecasts.  I have no idea.

The market has made a strong move up into the announcement.  Exactly what has it discounted?  Is a taper fully discounted?  Is a no taper announcement the only that would drive prices significantly higher?  Will people rush in to buy even if the QE has started to come to an end?  Will they sell like crazy if that is the case?  The most common thing for the market to do when it makes a big move into a big news event is to reverse afterwards.  With breadth this strong most of the time a pullback will be bought for a test of the high.
If we do end up going down after the announcement I would expect it to lead to a buying op as long as it stops around the 50 SMA.  I think a break of the 50 SMA at this time would be a very serious negative.


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