From Nic Lenoir of ICAP
Bring on The Fed Already
We expected a week of consolidation and ranging ahead of the Fed and we got just that. One could have thought equities would underperform a bit more but so far they are holding up. It is worth noting though that there is a lot of divergence on the 3-hour chart of the Nikkei, the Vix signal is still in place, and the Dow has also met critical resistance testing both channel resistance and the year's highs. It seems relatively unlikely we get a massive break ahead of the fed but one never knows: the market is ripe for a correction for sure, both in terms of technicals and fundamentals.
Fixed Income has seen some paring of the relentless rally of the last few months. I want to raw attention on the schatz where the market is sitting on critical support: we have tested channel support, C=A, as well as the overlap with the highs of 2009. I am a better buyer here.
In 10Y US Treasury future we have not seen the 61.8% retracement but we tested the levels of wave 4 of lower order and if we bypass 126-10 then the market will keep trading up toward new highs. Until you see 124-24 broken decisevely this is in theory just a pull-back before further advance.
I think what the Fed does will be irrelevant in terms of economic impact, and the more I talk to people about it the more I realize most share this view. The market is solely focused on the Fed and not the election as it is relatively understood that politicians are useless even though the list of tasks to fix our economy should in theory provide them an opportunity to make themselves useful. Given they will not rise to the challenge and will keep failing to deliver any concrete measures that could lead to progress, and that rates are at 0, as Bill Gross said the only thing for the Fed to do (OR NOT) is QE. I see no value but since they have made it their mandate to target inflation and now GDP I suppose Mr. Bernanke is at least consistent within his delusion. It is interesting however that even Bill Gross has joined the bandwagon. The ECB has also said the Fed is going in the wrong direction even though I bet they would be hard pressed to explain who is buying all these Spanish, Portuguese, Irish, Greek bonds and other turds they are trying to keep afloat. In that sense their only saving grace is that they sterilize their purchases, but they too are engaged in asset price fixing aiming at controlling GDP. Fighting a structural deficit and unemployment printing money is a bit like taking a leak in the ocean to warm it up, and you have to be careful because if the wind comes at you it can backfire. The only traders I talk to cheering the QE news are those who say "it would be so terrible if they let the market reprice". That's simply fear speaking as they want to protect their lifestyle at the cost of rebuilding an efficient capitalist society where government doesn't reward bankrupt entities. Most are actually getting tired of this fake market, low yields, low volumes (people stop trading when the market is not reflecting any reality as it becomes a joke), and they see that policies are unsustainable and will lead us nowhere.
Until enough speak their mind and a politician emerges that has the country's interest at heart and not his own... we wait for the Fed. The culminating joke of 3 months of anxious waiting rewarded by a bunch of professors out of touch with reality, or worse maliciously claiming, to be propping up asset prices which they view as a sign they do their job well. Yay!
Good luck trading,