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Thursday, 26 January 2012

Fed Expects Stagnation - BUY!

Well that was a wild Fed day yesterday and the news was that the Fed is so confident that current policies won't work that it will leave real interest rates negative until the end of 2014. Equities surged on what passes for good news nowadays. Bernanke was surprisingly candid in the questions afterwards, and admitted that current interest rate policies were in effect a massive redistribution from savers to borrowers. No getting anything past that guy it seems. In a country so resistant to tax rises it seems remarkable that this (in effect) massive redistributive tax on savers, worth a conservative $300m per year to the government alone, attracts so little attention. Funny old world.

Overall yesterday had a big impact in a number of areas. On SPX we saw a surge to a high at 1328.30, not far under the resistance in the 1330 area I mentioned in the morning. Looking at the rising wedge on SPX that could go a little higher this morning and if the wedge overthrows a bit we might see 1335. Any break of wedge resistance with confidence would look very bullish and suggest an extension into the 1350s to my eye, but I'd still be surprised to see that:
In terms of the bigger trendline picture SPX has now convincingly broken declining resistance from the 2011 highs and is testing declining resistance from the 2007 highs. A break above would leave the next major resistance at the 2011 high, and seeing that test in the next couple of months now seems more likely than not. Short term this is a big resistance level however. Something that's interesting on this chart is the steady decline in volumes since the October low. The only equivalent to this that I can see in recent years was the reversal in 2010, which was obviously a corrective move. Interesting, though not necessarily significant:
NQ was strangely passive yesterday, and has not yet followed ES over the Tuesday night AAPL earnings high.  A short term triple top might be forming there but overall the move from the Dec 19th lows looks like a decent rising channel:
The really interesting moves were elsewhere however. First on gold, which broke up through double resistance at declining resistance from the 2011 high and also the very important 150 DMA. That is provisionally bullish, but it still needs to break back up through broken support from early 2011. Once that is broken a test of the 2011 highs would be the next obvious target:
Bonds responded very positively to the news that interest rates would be held down for the next three years and briefly spiked over both the 142'28 target I gave yesterday and the 143 resistance level I mentioned just above that. There is no ideal pattern here but this could be read as either an IHS or a cup with handle with resistance at 143. If we see an hourly close over 143 the obvious next move would be a retest of the last highs in the 145'10 area:
EURUSD didn't make my short term double-top target yesterday and reversed up to break the IHS neckline earlier than I expected. The right shoulder is a little small, but the pattern is valid enough and the target is in the 1.35 area. In the shorter term EURUSD is reversing at the upper trendline of a rising channel from the low and I'm wondering about a retest of the IHS neckline and channel support in the 1.306 - 1.306 area today:
Does this bounce on EURUSD have legs? Well I've been watching the declining channel on GBPUSD, with the view that a break up through channel resistance would confirm the bounce on EURUSD, and it broke up yesterday, so I think that 1.35 target on EURUSD looks credible. There is some resistance in the 1.35 area and I'll be looking to see if there is any possible trendline resistance there too. Here's the broken channel on GBPUSD:
The stats for today are bearish and the stats for tomorrow are bullish, based on Fed days in the past with big moves up. There is strong support on ES at 1316.5, and a move much below that would look bearish. From the SPX chart I'm expecting big resistance on ES in the 1325-30 area and that is a very possible interim top area for anyone still keen to short this interminable grind upwards. If we see weakness in the first hour today it's worth noting that the pattern for January so far has been initial weakness with a low in the first hour followed by a grind up for the remainder of the day.

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