9/14/12
Stocks opened with tentative action in front of the Fed, but the fireworks started after the announcement of QE3. The Dow gained 207-points and most of the major indices gained between 1% and 2%.
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[TD="width: 241"]
[TD="align: center"] Daily TSP Funds Return[TABLE="width: 153"]
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[TD="align: right"] G-Fund:[/TD]
[TD="align: right"] 0.0036%[/TD]
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[TD="align: right"] F-fund:[/TD]
[TD="align: right"] 0.13%[/TD]
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[TD="align: right"] C-fund:[/TD]
[TD="align: right"] 1.64%[/TD]
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[TD="align: right"] S-fund:[/TD]
[TD="align: right"] 1.15%[/TD]
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[TD="align: right"] I-fund:[/TD]
[TD="align: right"] 1.55%[/TD]
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The market had been performing so well despite the lackluster economic data so I was actually wondering if the QE3 was already priced in, but yesterday told us - not completely.
We talked about the path of least resistance being the downside in the S&P 500 - unless the Fed acted and this chart tells the story. It blasted through resistance on good volume.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
I thought it was interesting that bonds tanked right after the QE3 announcement, but rallied the rest of the day above where it was before the announcement. Clearly the initial reaction was - sell bonds and buy stocks, but by the close they were buying both. I have to admit I didn't do my homework on this yet and will have to look into why this was the case. The only thing I know is that anything traded in dollars got some help today, and I guess that included bonds.
The small caps rallied nicely and I had been debating whether we were seeing a flat top or a bull flag. Yesterday's action confirmed it was a flag. The Russell 2000 is now touching the upper resistance line of the rising trading channel, but with the steep incline of the channel, that resistance isn't very important.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
I have been watching the Nasdaq 100 closely lately and while the index made a new high yesterday, it is still lagging as it is not blasting above the prior highs like the other indices. One of the leaders is lagging.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
Make that two of the leaders. The Dow Transportation index has been rallying strongly, but like the Naz 100, no new high yet. It seems to be near the top of the trading range between 4950 and 5250. Just something to consider.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
QE3 is basically a nice way of saying - printing money, and when we print money, the dollar loses value.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
When the dollar loses value, things that are traded in dollars go up in value, as we saw in stocks and bonds today. So, with the dollar already down 10% (based on this dollar ETF, UUP) leading up to QE3, could we have seen a "sell the rumor" now let's "buy the news" in the dollar?
The trend in stocks is unquestionably up, and the Fed's action is certainly bullish for stocks so fighting it may not be smart, but short-term, can we see the dollar bounce, which would mean some weakness in stocks? I don't know, but I would be a buyer of dips with the fed pumping $40 billion a month into the system.
Thanks for reading! Have a great weekend!
Tom Crowley
Posted daily at TSP Talk Market Commentary
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