BROAD STOCK MARKET TRADE ALERT (3:15 pm EST)
There is a lot of financial market chatter right now about the possibility of the Fed introducing the idea (most likely not the immediate implementation) of a fourth round of quantitative easing (QE4) at its meeting on Wednesday (see Sunday's blog). Many are seeing the anticipation of this possibility as the explanation for the broad stock market's vigorous rally over the last two weeks. If that is true then a Fed statement tomorrow without a mention of QE4 could put a damper on the rally and trigger a serious downslide. On the other hand, even a brief mention of QE4 could propel the rally higher. Last Thursday the DOW shot up to almost 16,800 but then pulled back strongly which was suggestive of a top. I entered a short position with a tight stop loss at 16,850. Today the DOW is breaking that level and has even cleared 16,900 at the time of this writing. There was extremely strong resistance from 16,850 to 16,900, and the fact that this broke so easily suggests that this market could be turning bullish again. A further sign of market strength is the fact that a strong bullish momentum signal appeared in the NASDAQ today which makes this index now mixed bearish and bullish (the DOW and S&P remain nearly 100% bearish). For all of these reasons I am going to pull out (cover) my short position in the broad stock market today (with a small loss of about 1%) and stand aside to see what the Fed meeting brings us tomorrow. If the market does decide to turn down we may be able to reestablish our short position if the correction is serious, but I think the risk of this market turning bullish at the moment is strong enough to make the case for stepping aside right now. Covering (unloading) my short position in the broad stock market today and standing aside this market for now.
There is a lot of financial market chatter right now about the possibility of the Fed introducing the idea (most likely not the immediate implementation) of a fourth round of quantitative easing (QE4) at its meeting on Wednesday (see Sunday's blog). Many are seeing the anticipation of this possibility as the explanation for the broad stock market's vigorous rally over the last two weeks. If that is true then a Fed statement tomorrow without a mention of QE4 could put a damper on the rally and trigger a serious downslide. On the other hand, even a brief mention of QE4 could propel the rally higher. Last Thursday the DOW shot up to almost 16,800 but then pulled back strongly which was suggestive of a top. I entered a short position with a tight stop loss at 16,850. Today the DOW is breaking that level and has even cleared 16,900 at the time of this writing. There was extremely strong resistance from 16,850 to 16,900, and the fact that this broke so easily suggests that this market could be turning bullish again. A further sign of market strength is the fact that a strong bullish momentum signal appeared in the NASDAQ today which makes this index now mixed bearish and bullish (the DOW and S&P remain nearly 100% bearish). For all of these reasons I am going to pull out (cover) my short position in the broad stock market today (with a small loss of about 1%) and stand aside to see what the Fed meeting brings us tomorrow. If the market does decide to turn down we may be able to reestablish our short position if the correction is serious, but I think the risk of this market turning bullish at the moment is strong enough to make the case for stepping aside right now. Covering (unloading) my short position in the broad stock market today and standing aside this market for now.
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