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| Fed induced rally in S&P Futures |
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Fed induced rally
November 3rd, 2010
"Helicopter Ben" delivered on Wednesday by announcing another $600 billion in Treasury purchases through the second quarter of next year. At $75 billion a month being injected into the economy, it's hard to fight against the Fed machine.
The equity market reaction to the news was relatively volatile and indecisive but by the close of trade it was clear the market was satisfied. However, we could see some buyer's remorse going into the weekend. Although earnings have been good and the recovery is underway, a large part of this rally has been at the hands of artificial influence. At some point investors might begin to second guess themselves.
With that in mind, we still don't believe that being overly bearish will pay off in the end. Short entries should be done on sharp rallies and the bears mustn't overstay their welcome. For instance, if you took our ideas from the previous newsletter of selling the S&P futures near 1195, the NASDAQ near 2156 and the Russell near 718 you could have done rather well had you been savvy enough to take profits, or at least trail tight stops, as the market plummeted. Had you taken our entry points only to watch the market rally back in your face, you likely suffered psychological damage. FOMC meetings have been a much more reliable sell signal than many of the popular computer generated oscillators. More often than not, the market has suffered significant losses in the days following a Fed meeting. However, just like any other indicator it isn't fool proof. In fact, the last Fed meeting was followed by an incredible stock index futures rally. Accordingly, the bears should be cautious and hedged if possible.
There should be decent resistance in the high 1190's, but there are likely lingering stops above 1200 and with POMO tomorrow 1207ish isn't out of the question. Aggressive bears might look to short near 1199 but 1207 (if seen) would provide better odds. Similar resistance in NASDAQ futures lies at 2165 and then again near 2185. If you are trading the Russell look for 718 and then 728ish.
* Due to time constraints and our fiduciary duty to put clients first, the charts provided in this newsletter may not reflect the current session data. However, market analysis and commentary does. Charts provided by Track 'n Trade, Gecko software.
**Seasonality is already factored into current prices, any references to such does not indicate future market action.
Please note: An e-mini S&P and e-mini NASDAQ chart are used because they better for charting purposes, but trade recommendations can be applied to either the full-sized S&P or the mini. Unless otherwise noted, profit and loss will be based on the mini version.
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