From the Trading Desk

Fed Day Turns Nasty as Stocks Fall on Bernanke’s Policy Decision

What a volatile day it turned out to be with stocks gyrating after the FOMC policy announcement only to close at the lows of the session. Stocks were lower ahead of the announcement as many feared the Fed would inject into the statement regarding tapering bond purchases. In fact, it did not and the market still went lower. Bonds sold off in tremendous fashion with the 10 year yield at 2.333% for the day. Higher yields will not be kind to the US Treasury and the US government cost of servicing debt. Given today’s action and the jump in volume it appears this market wants to head lower with us leaning towards the sell side of the Big Wave Trading model.

Volume kicked into hyper drive after the release of the statement. Intraday volatility did as well and was mostly like due to algos fighting each other. The NASDAQ appeared to have a few 10 point swings in a few seconds. It is very doubtful humans could move as fast causing this type of movement intraday. It is more for our amusement to watch those trying to decipher this type of action. No way could one even begin to interpret and act upon profitably on the type of action we saw today. Avoid those who claim they can at all costs.

The fear index or known as the VIX ended the day slightly higher closing at 16.64. It dipped as low as 15.36, but was able to finish in the green. For such a big move lower the lack of movement to the upside in the VIX is somewhat puzzling. Perhaps traders aren’t as fearful of a taper then the market action is leading on. For now, we have weak price action accompanied by heavy volume and this is throwing out cautionary signals.

There certainly will be pundits who will be claiming the market has exhausted itself and we have topped for good. No one knows the future and while anything is possible nothing is certain. We do see ETFs like HYG and JNK displaying very weak action and it would be easy to conclude this is over. However, in 2011 many claimed this to be over and we are sitting near all time highs. We’ll let price action do our talking and follow it and leave the guesswork to others.

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