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Wednesday, December 18, 2013

Daily update 12/18

I got something sort of right.  From Daily update 12/13 I wrote:

"So Bernanke said he would like to end QE completely at 7% unemployment.   Guess what folks we are there and he has not even started.  For supporting data we had GDP over 3%.  Later in the year the struggles in Washington were mentioned as a reason to keep QE going.  Well guess what.  They have come to a budget agreement passed by the House and assuredly will be passed by the Senate.  His conditions to end QE altogether seem to have been met.  His latest excuse not to taper has been removed.   Could someone explain to me how the FED does not do some form of taper at the next meeting and maintain any credibility.  I sure don't see it.

The question is how does this affect the market.  My guess is that smart money is selling now to get ahead of the announcement.  That seems likely to break the key 1775 level next week and cause an increase in selling pressure into the FED meeting.   If the FED does taper there could be more selling that day and maybe the next as dumb money bails out.  We should then get a bottom and rally into year end.  A no taper announcement could actually be very negative.  The majority of people think the economy is getting better and would likely wonder what does the FED see that they need to keep up QE."

The FED did taper as anticipated.  SPX did break 1775 as expected.  However, the selling only lasted for a few seconds then the rally that I was expecting into year end occurred over the next hour, LOL.  What happens now?

Here is the daily SPX chart.

I have not looked back in history, but I would guess that it is a rather rare occurrence for the low to touch the 50 SMA and close at a new all time high.  There was a big surge in volume to go along with the move.  The trend indicator turned back up of course.  Just remember it needs a higher close to confirm the change.  Lets zoom in to the SPY 60 minute chart.

That is the highest volume since the Sept. meeting when the FED did not do the taper that everybody expected.  The big volume continued right into the close.  Lets look at that Sept. chart.

SPY gapped up the next day and started selling off.  SPX ended up pulling back to the 100 DMA.  What is going to happen this time?  There are considerable differences in the current situation.  A look at the SPX chart above shows SPX very extended and at trend line resistance after that Sept. FED meeting.  There were 314 new highs that day while we had 186 today.  The McClellan oscillator was 245 (very over bought) while it is only 32 (very low for new high close) today.  We have recently been trading sideways so price is not extended in the short term like it was in Sept.  We clearly do not have the same over bought conditions that we had then.  If it rolls over again it won't be for that reason. 

SPX has been above 1800 twice and failed to find buyers.  Here we are again, will rally chasers show up now?  If they would not buy because of taper worry that should be settled.  If they would not buy because of budget battles in Washington that should be settled.  What is there to worry about?  If it rolls over again it is likely a sign the market is worried about something nobody is talking about, or price at 1800 is simply too high.  A close back below 1800 again is likely to cause more intense selling pressure then we saw the last two failures.  I think that is valid even if it is weeks from now before it happens.  Keep an eye on that 1800 level.  I am not going to try and predict how far we go on the upside if rally chasers show up.  I will be watching for extreme over bought conditions that could precede a pullback.

Chart practice has been updated with URBN the stock tonight.


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