Fed Day Model and Trend

The FOMC concludes their two day meeting today, surviving the “epic” and “historic” blizzard. The model for the trading day is to see stocks in a plus or minus range of 0.50%, but generally we see mildly rising prices until 2pm and then increased volatility with an upward bias to the close.

The Fed trend is to be long the stock market from yesterday’s close to today’s close based on a variety of historical factors. That trend has an accuracy rate of 77%. Should the market end higher today, it would set up another trend for stocks to be lower tomorrow although not as strong as today’s trend.

Expectations are for the Fed to do absolutely nothing at today’s meeting, but everyone will be parsing the statement for clues that the FOMC will forestall raising rates until late this year or even into 2016. You already know that I vehemently disagree with any rate hike anytime soon and believe that QE should not have ended. I have said this for years, but I will say it again. Our economy and to some degree, our markets, are not strong enough to stand on their own two feet.

We can argue whether we should have QE’ed $5 trillion at all, but once the program began, it has to be seen to its rightful end. I don’t believe the Fed did that.

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One Door Closes Another Opens

On Wednesday, to no one’s surprise, Janet Yellen & Co. ended the Fed’s 5+ year experiment of purchasing assets in the treasury and mortgage backed securities market, also known as quantitative easing (QE) or money printing. I won’t rehash all of the reasons why I continue to believe this is a misguided strategy, but it is.

Before the ink was even dry on the statement, the Bank of Japan completely caught the markets off guard last night with another ramp up of their own QE, buying more bonds, extending maturities and really ramping up their purchase of stocks using ETFs and REITs. I have said this since Abenomics (Japan’s version of our QE but on steroids) was launched in Japan, this will go down as the greatest financial experiment in history. Japan is going to print until the world runs out of ink!

And the European Central Bank (ECB) isn’t far behind.

Many are left to wonder what our markets and economy are left with in a post QE America. In a vacuum, the end of QE is headwind, however, with Japan going on even more steroids and the Europe about to begin QE, I don’t view it as a negative just yet. That time will come down the road.

For now, my thesis remains the same. Markets gave us a golden opportunity to buy a few weeks ago and I hope people took advantage of that. It was easy in real time and I wrote about the bottoming forming as it took place. The bull market is old, wrinkly,  but still very much alive. Rallies should get more selective from hereon and it will be interesting to see where leadership comes from.

Markets really need to see the high yield sector step up and rally! Odds favor it will.

Happy Halloween! One of my favorite holidays. Can’t wait to take the kids out tonight and then come home for some adult beverages.

Enjoy the weekend and be safe…

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