The Fed knows this and is now trying to prepare the market for withdrawal. But the market is on total life support from the Fed. Take away the Fed punchbowl and the party stops.
The S&P 500 achieved its anticipated 4-5% bounce off the recent 7-10% pullback, most of it accomplished in a very light holiday trading week. Much of the gains were attributed to overly effusive optimism over the prospects of resolving the fiscal cliff. Ironically, with Washington abandoned the past ten days for Thanksgiving, we have not heard anything substantive on the negotiations since Senator Reid and Speaker Boehner spoke jointly on the White House Lawn on November 16. The returns in equities that resulted from this perceived positive outlook has likely run its course as the blue chip index has regained the levels from the morning after the Election. Certainly, the mundane increases in open interest for the futures and the outperformance by the blue chips versus smaller capitalization names on a beta adjusted basis hint at such vacuous motivation for the upward move.
Until recently, the only question traders had to ask themselves was "how much more to buy?" The last week or so has left traders across the market now suddenly plagued by numerous questions. Will an Obama speech continue to be the catalyst for selling pressure to resume? Why is VIX 'low' when all around is asunder? When do the BTFD crowd step back in? Where's the 'wall of money' flowing now? From new issue demand to Italy's ratings agency trials and from bounce-buyers waiting for Godot to VIX's complacency, FBN's Michael Naso and Mint's Blain cover some of the conundra.
As S&P 500 futures gently probe the other side of 1070, a look under the hood at  how far US equity indices have fallen from their recent peak,  mid-day market internals and  an egregious intra-second iteration of HFT-induced stop-hunting (i.e. electronic rape).
Lowest NYSE Tick of the Millenium: Market Internals Set Records on Largest Intra-Day Point Crash of All-TimeSubmitted by Fibozachi on 05/06/2010 23:45 -0400
Six unique looks at yesterday's record breaking S&P 500 futures plunge alongside NYSE market internals with a few of our favorite tools ... the lowest NYSE Tick of the millenium, skyscraper sized daily & 1-minute down volume, ES 1-minute, ES Momentum Bars with ranges of 1 & 5
VOLD (NYSE Up-Down Volume Differential) broke below 4/16 opex levels and then some today; registering the single most negative close (-1,621,467) since 3/02/09. A quick look at the S&P 500 E-mini, NYSE Tick, VOLD, VIX, ADD, UVOL & DVOL.
AAPL earnings blew the doors off, DARPA got its grapefruit on with an Industry Day for the "Mind's Eye Program" and even 'Hitler is no longer upset about the iPad'. Wonder what Jimmy Cayne was up to in the clubhouse between bridge tournaments? After inspecting AAPL and market internals, almost as many looks at POT as UC-Boulder saw yesterday.
Today's price action registered extremely bearish readings across the NYSE TICK and NYSE VOLD (Up-Down Volume Difference). In our oh-so-very-humble opinion ~ equity markets are about to enter the Temple of Doom.
Today's market action was rather uneventful, however "lazy" days like today can often provide highly accurate and effective trading signals as a direct result of price immobility within narrow ranges. With a practical knowledge / understanding of technical analysis, one can utilize such signals to profitably scalp futures, stocks and ETFs with ease.
One of the screens that we at Fibozachi continually monitor throughout the Cash session (09:30 - 16:00) is the NYSE TICK.
The hackneyed cliche of "volume precedes price" is certainly true more often than not, however, it is far from foolproof. We prefer to modify this tired cliche by saying that: "buying and selling pressure precedes price."
The snapshots included (from today's session) clearly illustrate how this critical relationship (between the TICK and price action itself) plays out on a daily basis.
Technical Profiles of Gold vs Silver, the US Dollar vs Gold and the US Dollar with highlights from an interview with the winner of the 2008 Automated Trading Championship