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Which Way Wednesday – FOMC Edition

ilene's picture





 

By Phil of Phil's Stock World

So much for Obama boosting the markets.  

The WSJ has a cool toy for comparing Obama's speech to past ones and even other Presidents, so I won't get into much of the content here (highlight video).  

As was expected, the President said he will use executive power to implement his economic agenda to help address the ever-widening gap between rich and poor in America, announcing a dozen proposals, including raising the minimum wage to $10.10 an hour for Federal contract workers, presumably setting an example for private enterprise to follow.  

The reality is, there's not all that much Obama can do without Congress and it's the Democrats' objective to make that clear to the people between now and November, when the bottom 99% get to decide who will be in that Congress for the last two years of Obama's term. 

"President Obama has this fantasy that he can just use his pen to write laws," said Rep. Steve Scalise (R., La.), chairman of the conservative Republican Study Committee. "We don't have a monarchy in this country—there's an executive branch and the legislative branch, and the president has to work with Congress to get things done."

Sorry, that quote should have gone with a musical queue.  

Turkey goosed the markets last night, with a SHOCKING rate hike on one-week Interbank Rates, from 4.5% all the way to 10% as that country attempts to get its plummeting currency and runaway inflation under control.  That boosted the overnight rate from 8% to 12%!     

So far, the Fed and the ECB have been fairly successful in exporting all the inflation - mainly to third-world countries but the BRICs are feeling the pressure as well as G20 fringe economies like Turkey and Indonesia and their Central Banks are hiking rates in an attempt to keep things under control while our own Central Banksters keep screwing over the bottom 90% by pretending inflation doesn't exist.  

"In the last quarter my sales have dropped by a third, while the costs have risen 20%," said Sinan Oncel, owner of Twigy, a popular footwear chain with 19 stores in Turkey. "We don't know what will happen next. We don't know what the next political move will be and it's worrying."

Argentina's central bank has also pushed up rates in recent days, and in South Africa, which faces a similar mix of weakening growth and high inflation, rate setters were under pressure to follow suit at their meeting Wednesday.  On Monday, the Bank of Russia shifted the ruble's trading band higher, in response to selling pressure on the Russian currency.

The Argentine central bank, which lacks independence, this week is offering 25.89% on peso-denominated notes due in three months, a six percentage-point increase from the auction a week earlier.  Despite the move, however, most economists say interest rates remain negative in Argentina and that the bank will need to push rates above 30% to have an impact on inflation, which is estimated at between 25% and 30%.

Now, back to our markets.  Not much to report. In yesterday's live Webcast, we predicted that we'd get to our weak bounce lines of Dow 15,940, S&P 1,794, Nasdaq 4,100, NYSE 10,080 and Rusell 1,138 and that we would likely fail them and head lower.  

 

 

As you can see from our Big Chart (above), the last-minute pump took us almost exactly to our expected levels and, despite an overnight head-fake, courtesy of Tukey's Central Bank, it looks like we're back on track to continue the downtrend we expected.  That's why we didn't change out positions in yesterday's rally--saved by simply following the 5% Rule™:  

Our 5% rule is fairly simple.  We expect major market moves to trigger in 5% blocks.  Why is this? Because all the clever programmers and all the captains of industry and all their little consultants all get together to design the ultimate trading system but they all end up rounding off here and rounding off there and, ultimately, the decision to push the button comes down to a person (or, even worse, a group) who then end up being affected by psychological resistance points as well as the usual mob psychology that dominates the markets.  The reason Goldman’s trade-bot is able to convert winning days 93% of the time is they are NOT trying to do any of these things – they are simply inserting themselves in the middle of a transaction to swipe pennies – that’s not trading but it sure is profitable! 

 

MOST market participants actually buy stocks and they try to buy low and sell high and they have profit targets and stop losses, etc.  Over 1/2 the funds playing the market rely on various TA methods for entry and exit points and many funds use Fibonacci series in their calculations so it all becomes a self-fulfilling prophesy.  We take advantage of that by effectively averaging out the results which gives us a general rule that stocks tend to move in 5% incriments before a 20% retrace (keeping in mind that Fibonacci looks for 23.6% so it’s an "about" number). 

 

The Dollar is 80.76 so game off if it fails 80.75, but panic is back in the air ahead of the Fed, which might taper another $10Bn a month (less FREE MONEY). $10 out of $75 is 13.3% while $10 out of $85 was 11.7% so the tapering is harsher with each consecutive round.  

We're going to put on some bullish covers ahead of the Fed because they MIGHT hold off on tapering and, in fact, it's very possible that this little downturn is nothing more than a temper-tantrum by the Banksters trying to stop the Fed from taking away their FREE MONEY in the first place. Cerainly the timing is suspicious.  

I put up a bunch of inflation-fighting bullish hedges last week. Our 5% Rule has prevented us from pulling the trigger so far but, today, ahead of the Fed, I think we'll review them in Member Chat and take a stab at one or two to lock in the gains in our fairly bearish Short-Term Portfolio.  

It's going to be a very volatile day but, if the Fed doesn't "save us" this afternoon - I don't know what will.  

 


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Wed, 01/29/2014 - 16:44 | Link to Comment kurt
kurt's picture

All of the sudden the chartists look right AFTER we know what's happening. Could they, I'm just saying, be bullshit artists?

Wed, 01/29/2014 - 15:30 | Link to Comment SAT 800
SAT 800's picture

T he EM crisis? I guess New Yawk is an Emerging Market now; who knew?

Wed, 01/29/2014 - 15:27 | Link to Comment SAT 800
SAT 800's picture

South Africa has already piled on the interest rate raise from Turkey; the contagion is on. These kind of actions are what you might call the shooting, or hot, phase of a currency war, whereas what we have had so far has been the polite phase.

Wed, 01/29/2014 - 15:09 | Link to Comment Exile on Mainstreet
Exile on Mainstreet's picture

100% Grass-Fed Beef is the answer.

Wed, 01/29/2014 - 15:05 | Link to Comment the grateful un...
the grateful unemployed's picture

the feds in a bind if they react to the EM crisis, they will probably emphasize "unchanged" in order to calm the markets, which is not likely to happen.

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