All eyes were fixated on the FOMC release of their most recent meeting. Heading into the meeting stocks were off their highs of the session. Volume was running lower as many institutions and traders were simply waiting on whether or not the FOMC would announce a tapering. Unlike the September meeting stocks did not react positively on the release. Initially there was a positive reaction, but sellers would take over. At the end of the session a last hour rally helped ease the pain of the sellers. Volume rose on the day giving a distribution day across the board. One day doesn’t make a market, but today does shine a light this market may be due for at least a period of consolidation. Trend remains up.
There will be a plethora of those calling a market top here. It goes with the territory, but is it a top? No one knows and while it may very well be a top we still have the FOMC providing primary dealers with $85 billion a month. It is clear the FOMC is trying to force the wealth effect to spread across the entire economy. So far, those who have been in stocks and bonds have been the primary beneficiary of the Fed’s policy. Record numbers are on disability, food stamps, or on some sort of federal assistance. Is this the best we can do? We’ll stick with trend following and let the angels in Washington DC arrange the lives of many continue.
We have been posting items where many are trying to show the market has topped. It is a silly game to play, but we are seeing signs of where we may have at least an intermediate term top. When growth names suffer it means one of two things. Either it is rotation or the market is about to stumble. AAPL stumbled on earnings, LNKD stumbled, and now FB erased a 15% gain in the after-hours session. While this isn’t an epidemic it may be something to keep an eye on.
In addition to earnings, we are seeing other items like Margin Debt and Sentiment getting up to frothy levels. Even the number of stocks one standard deviation above their respective 50 day moving averages is at levels not seen since April of 2011. Margin Debt balances are at all-time highs and while this can go higher it is interesting the number of II Bears hit near an all-time low of 16.5%. We’ll stick to price to make decisions and there are no exceptions.
Has Quantitative Easing reached a point of diminishing returns? It is anyone’s guess. Stick with the plan and obey your entries and exits.
