The Federal Reserve has become a total political entity. Once they stated they wanted to be transparent, this provided a forum where their statements became governed by saying the ‘politically correct’ statements. The Fed is now spending more time working on their image enhancement though the overall good for the economy. Will the truth ever be spoken again?
Wednesday afternoon we experienced a plus 1000 tick that was generated at the highs of the S&P. This is important because it generated a pullback and demonstrates that once again the staying power in the S&P is not constant. It generally takes about 3 days for the absorption of the Fed’s rhetoric to be digested. Closing prices on Friday will probably have absorbed and factored where the actual market is. Technicals are still in place whereby a close below 1540 then 1525 are stair step bearish breakdowns. The Cyprus situation, I believe is just the tip of the iceberg with more uncertainty to come. There are many rumors flying around about it, but none of very decisive nature as of yet. Time will tell how it pans out. Trading action prior to the Fed announcement showed a progression of higher highs. Clearly, the Fed is buying and does not mask their efforts. Anytime the master computer is not in gear the bonds drift downward. A faulty system indeed but eventually the world will disdain our U.S. Treasuries and the whole sale dumping will be beyond comprehension as Fed rhetoric will be unable to offset reality.
The bonds touched the resistance precisely at 143’31. Then we had a sharp decline. This has created an environment whereby the bonds are demonstrating their inability to hold rallies similarly to how the S&P is acting. Keep in mind a close below 140 is a complete roll down on the bonds. We have had a long grouping of daily highs and lows that have stayed in a continuing narrow range. The interesting aspect is that we are establishing a potential box with a 20-25 point low to high range. We are also further deteriorating volatility now to dangerous levels. The last hour today could follow the last hour of yesterday which had slowly oozed downward. The Cyprus activity should put a dampening on world events, but Bernanke will probably offset this.