Tuesday, September 16, 2008

09.16.08 - AIG/Fed Foreshadow?

I'd propose that the pop on the AIG speculation foreshadows the moves we will see around the Fed announcement. That said, Adjusted Tick is fairly negative even as the Advance-Decline line shows slight signs of life. Price is just now testing the rising VWAP.

From a daily standpoint, note on the following chart how the first downside objective of this "prescient" article from last week was met this morning, including significant deterioration among the various capitulation indicators. Short-term RSI levels are also now near buyable lows. Even so, this is one capitulation event I'm not willing to call until after the fact, say after one or two days of significant 52 Week Highs - Lows improvement. There will undoubtedly be plenty of opportunity ahead for those holding cash.

More Reading:

o VIX and More: VIX:VXV Ratio at 1.16
o VIX and More: CDR Counterparty Risk Index Swamps March High
o Trader Feed - Thoughts about the Weakness
o Quant Edges - Older Studies to Review
o MarketSci - Fed Days

Fed Statement

Release Date: September 16, 2008

For immediate release
The Federal Open Market Committee decided today to keep its target for the federal funds rate at 2 percent.

Strains in financial markets have increased significantly and labor markets have weakened further. Economic growth appears to have slowed recently, partly reflecting a softening of household spending. Tight credit conditions, the ongoing housing contraction, and some slowing in export growth are likely to weigh on economic growth over the next few quarters. Over time, the substantial easing of monetary policy, combined with ongoing measures to foster market liquidity, should help to promote moderate economic growth.

Inflation has been high, spurred by the earlier increases in the prices of energy and some other commodities. The Committee expects inflation to moderate later this year and next year, but the inflation outlook remains highly uncertain.

The downside risks to growth and the upside risks to inflation are both of significant concern to the Committee. The Committee will monitor economic and financial developments carefully and will act as needed to promote sustainable economic growth and price stability.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Christine M. Cumming; Elizabeth A. Duke; Richard W. Fisher; Donald L. Kohn; Randall S. Kroszner; Sandra Pianalto; Charles I. Plosser; Gary H. Stern; and Kevin M. Warsh. Ms. Cumming voted as the alternate for Timothy F. Geithner.

11:20AM PST: Dollar basket ETF (UUP) is up +1.40% and rising. Fed keeps its powder dry -- [add:] but bear in mind several large monetary injections have been placed over the last several days! SPY is just under S1 and Tick is deteriorating. Don't let yourself get whipped, it will likely take through the close for this to sort out.

Bill Gross - "[Inflation statement is other worldly... clearly some Fed Governors on on another planet.]"

11:35AM PST: Supportive volume spike, restesting VWAP from below... not so sure. And it took...

12:10PM PST: Some tail winds now, but having a hard time breaking the pivot. I'd guess we do.

1:15PM PST: Morgan beats and an AIG bridge in the works, this may have been "it" [add: intraday -- but still see comments above]. Still some event news to get out of the way, but we are getting there. The next few days will tip that hat. Note that we went from oversold to mildly overbought in just a day again. As yet I'm still unsure what will pull us out of this on the consumer/economic side, but market watchers will invent something if they have to and call it anticipation of a recovery ex post.

Larry Fink just pointed out one positive element, mortgage rates have come WAY back down (30-year at 5.75% again). Add lower oil to that, substantial cash on the sidelines and on Tech Sector balance sheets, reduced inflation, soon to pass political uncertainty/ risk, fuller financial sector balance sheet disclosures, as yet unannounced added systemic/structural supports put in place, a few ologopilistic mergers in the financials, autmakers and transports, possible end to Iraq, easy to beat earnings comps ahead, global relative strength investment coming back into the US on the stronger dollar, improving consumer sentiment... Not too hard a picture to paint after all. Hey, hope springs eternal.

Never Investment Advice

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