The Fed is doing their best to orchestrate a soft landing for their rate lift-off. Yeah, that makes no sense. But I made it up myself and it makes me laugh. The FOMC are quick learners and were not about to follow in the ECB’s footsteps from earlier in the month by delivering less monetary action and more rhetoric than market participants expected. Fed Chair Yellen finally gave the people not what they wanted, but what they expected.
Heading into this week the S&P 500 (SPX) was near term oversold. It was my expectation that the market would rally into and likely out of the decision because it would match consensus and be littered with dovish language.
But now what? Well, its also been my view since late August (MorningWord 8/18/15: Warning Bells Scream in Silence) that the investment ground, the one that had been on such solid footing with the U.S. Fed put in place, is moving below our feet (more here). Ultimately, the extreme volatility that has been exhibited in almost every other risk asset class the world will likely come home to roost in U.S. equities. It’s also been my view that the path of least resistance for U.S. stocks is no longer higher, and for market participants who deem yesterday’s rate increase and statement about further gradual increases as some form of clarity from the Fed, then you have another thing coming.
To the charts. Since the lows in August its been my view that 2100 – 2050 in the SPX, the breakdown level from mid August should serve as significant technical resistance:
As for the SPX, month to date it has traded within a tidy little range of about 2100 to 2000, now approaching the upper end of its band. But I would add that a gap opening and then a failure below the early Dec high would mark the third lower higher since early November when the October rally petered out, which would put another test of 2000 in the offing, and if it breaks that I think we see a move straight to 1950 early in the New Year.
As I attempted to say in my final trade on CNBC’s Fast Money last night, I am starting a SPY short in anticipation of a failure soon at 2100, if I am wrong and it looks like it will establish a new range above, I will cut my losses quickly. Easy for me to say —->