The long awaited final Federal Reserve meeting of 2012 initial was celebrated, but the cheering did not last into the close. If quantitative easing parts one, two, and three weren’t enough the Federal Reserve announced a new round of asset purchases. More importantly was the reaction to the news of the latest round of quantitative easing was initial strong, but by the close it was clear the market did not like another round of money printing. Volume ran higher on the NYSE and lower on the NASDAQ. The reversal is not something we want to see and reinforces the need to exercise extreme caution. Cash remains king while we continue to operate in the current market environment.
One big negative on the day was the outside reversal staged by the Russell 2000 index. IWM and TNA both had outside reversals on high volume. Small caps have been the bright spot in this market and why we take notice. Perhaps today was a blip in the overall uptrend, but today certainly highlights the need to have an exit strategy when you enter the market. If this market turns to the downside are you prepared to get out? Are you prepared if we continue the uptrend higher? Have a game plan and execute with precision.
Tomorrow the QQQs should have its 50 day moving average cross under its 200 day moving average. If you don’t know by now it is known as the death cross. By no stretch of the imagination is this signal a 100% signal the QQQs are about to go lower. But, it has been known to produce vicious sell-offs and believe or not significant bottoms. We don’t know the future, but if this market turns lower we aren’t about to stay long while we move lower. Instead, we’ll follow price and if that means it is lower or higher we go with it.
Now with the Fed out of the way everyone will turn their attention to Congress and a potential deal on the fiscal cliff. Since 11/16 we have been told there was a deal that could be reached. We are almost a month removed from that date and we still have not seen a deal. In fact, both sides continue to point to the other side. Regardless if you think there should be a deal or not the fiscal situation we are in highlights how dysfunctional Washington DC really is. Perhaps Howard Dean is right and we should just jump off the cliff.
