There is nothing like a little Fed frenzy. Stocks surged after the Fed announced an extension of their zero interest rate policy. Treasuries surged ahead of the statement, but gave it all back afterwards. The Dollar fell sharply and commodities surged in the afternoon. Gold was the standout winner with a huge move above $1700. I am not so sure the Fed move is in response to the economy. While nobody really knows the motivations, I think the Fed has calculated how long it will take to fully recapitalize the financial system and low rates are part of this plan. Banks can simply borrow short-term money at excessively low rates and lend longer term for a classic arbitrage to make money. Enough of the funnymentals. On the price charts, the major index ETFs moved to new highs for the month and remain in clear uptrends. SPY closed above 132.50 and I extended the Raff Regression Channel a few notches. This week's lows mark first support at 130.50 and key support remains at 129. RSI support remains at 40. Even though stocks are overbought and ripe for a pullback or consolidation, there are simply no signs of a reversal or significant selling pressure.
**************************************************************************
Initially, treasuries were looking forward to the Fed statement and the 20+ Year T-Bond ETF (TLT) surged above 118. However, the stock market and the Euro really liked the statement, as did the commodity markets. Treasuries were suddenly outnumbered and retreated back to this week's lows. The failure at 118.50 reinforces this level as key resistance and keeps the short-term trend downtrend.
**************************************************************************
As with TLT above, the US Dollar Fund (UUP) also did an about face after the Fed policy statement. UUP surged to its resistance zone and then fell to new lows for the month in the afternoon. The move extends the short-term downtrend and reinforces resistance in the 22.40 area. RSI also edged higher, but did not break the 50-60 resistance zone and remains in bear mode.
**************************************************************************
The US Oil Fund (USO) moved below 37.6 in early trading, but recovered and surged to resistance by the close. The move was part of a general surge in commodity prices. USO ended the day near resistance and we need to see follow through for a breakout that would reverse the overall downtrend. RSI advanced to its resistance zone in the 50-60 area and a breakout here can be used to confirm a breakout in USO.
**************************************************************************
Remember those 7-Up commercials with Geoffrey Holder calling it the "un-cola"? Well, I think we can call gold the un-currency. The FOMC statement made it clear that the Fed is not pursuing a strong Dollar policy. Europe is also not pursuing a strong Euro policy. Both cannot decline because currencies trade in pairs like a seesaw. However, gold can benefit as the un-currency. The Gold SPDR (GLD) surged to another new high and broken resistance turns first support around 163. Key support remains at 160 for now.
**************************************************************************
Key Economic Reports:
Thu - Jan 26 - 08:30 - Initial Claims
Thu - Jan 26 - 08:30 - Durable Orders
Thu - Jan 26 - 10:00 - New Home Sales
Thu - Jan 26 - 10:00 - Leading Indicators
Fri - Jan 27 - 08:30 - GDP
Fri - Jan 27 - 09:55 - Michigan Sentiment
Mon - Jan 30 – 08:00 – EU Heads of State Meeting
Mon - Jan 30 – 08:00 – Italian Medium and Long Term Bond Auction
Charts of Interest: Tuesday and Thursday in separate post.
This commentary and charts-of-interest are designed to stimulate thinking. This analysis is not a recommendation to buy, sell, hold or sell short any security (stock ETF or otherwise). We all need to think for ourselves when it comes to trading our own accounts. First, it is the only way to really learn. Second, we are the only ones responsible for our decisions. Think of these charts as food for further analysis. Before making a trade, it is important to have a plan. Plan the trade and trade the plan. Among other things, this includes setting a trigger level, a target area and a stop-loss level. It is also important to plan for three possible price movements: advance, decline or sideways. Have a plan for all three scenarios BEFORE making the trade. Consider possible holding times. And finally, look at overall market conditions and sector/industry performance.
