Even the President’s State of the Union address couldn’t help keep futures higher after the Turkish Central Bank pushed lending rates much higher than anticipated. Buying did come in and rescue the market somewhat at the open, but all eyes were glued to the 2pm Eastern release of the FOMC policy decision. By noon time we had the highs of the session, but it was not meant to be held as selling would not let up until the final ringing of the closing bell. The taper of another $10 billion a month was anticipated and it came to no surprise to the market. However, even being delivered as expected there weren’t enough buyers to get this market to push higher. Turnover was quite high today as many institutions were positioning themselves after the release of the policy statement. We are in a precarious position in this market as short-term conditions are oversold. Respect the system and stick to it.
Bonds got a boost by the Federal Reserve’s decision today with the 10 year treasury yield rallying to see its yield under 2.7%. TLT continues to march higher and we continue to keep an eye on how bonds perform. If yields continue to fall we’d expect Utilities to gain a bit more interest with income investors in search for yield. XLU held real tough despite the sell off in other sectors. While XLU won’t give us big gains for those who need the yield may be given a gift by the markets if XLU triggers a long signal. Seeing defensive sectors holding up and even catching a bid does present a challenge for stock market bulls. Even GLD is getting in on the action.
Attention will be turned to tomorrow’s GDP print and jobless claims. Friday we’ll get a read on personal consumption and inflation. The fed will likely be keeping a close eye on inflation. We also have the Chinese Wealth Fund debacle taking place. Anything is possible and given the weakness we have in the market it certainly has the potential to get out of hand to the downside. The best course of action is to have an entry and exit strategy. Know when you are going to get in, position size, and when you are going to exit. Don’t adjust the plan in mid-flight either. I have never seen a plane’s wings and engines be replaced in mid-flight. Stay with the plan and execute.
The Federal Reserve is trying to save its credibility by not being held hostage to the markets, let alone hostage to small markets like Turkey. In keeping with the planned taper for now they have appear to know what they are doing and are in control. A gigantic turnaround from when the housing market collapse was front and center.
