Ms. Yellen made sure she spoke the words the market wanted to hear. Keeping rates low is what the market wants, and keeping rates low is what the market will get. She won't do anything she knows will hurt the market, because she uses the market to keep her job safe. If she lets the market fall hard, then she's allowing the economy to slip, since the market is keeping the economy higher.
Repeat after me: "The Fed’s job description is as follows -- do whatever it takes to keep Wall Street rocking." That's her job in a nutshell, folks. It's all about 401K's and funds doing well. And as long as she's doing her job, it's going to be very hard for the market to fall precipitously, even with froth still out of control week after week.
After Ms. Yellen spoke, the market rose and then fell fairly hard. It then advanced hard again, only to pull back again. Lots of indecision. The handle is still the only thing we know about with certainty. We tested the old high on the S&P 500 at 2011, with a 2010 print, and then things fell fairly hard. In the end we're still no where, still meandering in the back-and-forth handle.
Thus, keep it light until we get resolution one way or the other. There's no resolution here for sure. If we close over 2011 with some force, then you can adjust accordingly. But there's nothing to adjust to at this moment in time.
The bull-bear spread is down to an unacceptable 37.3%. It's better than being over 43%, such as we were a week ago, but it's still not a healthy number for the bulls. Therefore, I'll say it again: At any time, and without provocation, the market can get smoked to the downside. It's not showing that at all at this time, but the possibility always exists when froth is very high, especially for as long as it has been. It's nasty when you're over 35% for months at a time, not to mention half of that time being over 40%. We even touched 27-year lows in terms of bears. No matter how good the pattern looks, you have to recognize the risk involved. Just when you let your guard down you can take a very nasty hit for no reason.
So, don't let your guard down for a moment. Keep stops tight. Don't chase froth. Do what feels right to you, of course, but that's how I would be proceeding from here until things calm down in time. Froth is still a major headache even though we at least got a drop of relief this past week.
In short, a close over 2011 gets you more bullish. If and when we ever lose the 50's, which is a long way from here, you get more bearish. In between you should continue to expect more whipsaw. Today we saw a disappointing close. We went from just about breaking out to a strong late push down. The market received all it could want today and yet failed at the breakout. See the breakout and then play it and not before.
Jack Steiman is author of SwingTradeOnline.com