Market Overview


Below are the last two FOMC statements:

The most important part of the minutes will be the wording. The rates won’t be cut (we’re already at our lowest rate) and they won’t be raised (we’re in the middle of a deflationary cycle where raising interest rates would kill any hope of a recovery and send us for sure into a second depression). So that leaves the wording.

If you look at the 3rd paragraph of the March 18th release, they discuss actual numbers for the programs they plan to implement. Up until that point, we had no idea how big the programs were going to be. They said they intend to increase the purchasing of MBS, longer term treasuries, and agency debt. I’m not sure how much of this has actually been purchased already, and whether or not the programs need to be expanded just yet. I’m not sure if the numbers are out of exactly how much of the program they have spent. If someone has that info, that would probably be pretty helpful. If they expand the programs further I would expect another pop. If they don’t expand the programs, we could stay flat or sell off.

Last release, the move in commodities, particularly precious metals was extraordinary. Gold was hovering above 880, and closed the NY session at 950. FCX rose from 34 to 38 in that time period. All miners were on fire. Financials had a nice pop, but the extended move was in precious metals. Why? Because basically the Fed is beginning an inflationary cycle which at some point in the future will catch up to them. On the announcement, the key levels in gold will be 920 and 950 on the upside and 880 and 859(200 dma) on the downside.

I think if the market reacts negatively to the announcement we would see extended selling in the financials, and if it reacts positively we would see extended buying in precious metals. I think both will move on a strong reaction either way, so on the initial move I will probably trade financials. Then I will decide which of the two sectors I will continue to trade based upon what I expect and how they are reacting.

The S&P 500 is currently hovering below the 800 level.  With a close below 800 I think we will go re-test the November lows and possibly break them.  Once broken, I’m not sure where we would find support.  The market is losing confidence in Obama, and rightfully so.  All the levels buyers have supported over the last few months have been violated.

I expect a big fight into the close as the bulls and bears battle to control that 800 level.

Another key level I’m watching is the $8 level on the XLF.  If financials hold their lows, then we may hold the lows on all the major indices.

 

Must close above 800

Must close above 800