The news has been buzzing for the last week in anticipation of what the Fed would do next and to some the surprise of continued easing as announced yesterday shocked their systems. Today I want to show you some of the market reactions and talk about next steps in strategy for T-Notes, Gold, the Dow and the U.S. Dollar.
As would be expected on news of continued “stimulus”, T-Notes jumped up in price yesterday. I don’t typically show minute based charts, but when discussing news events it is important to stress the volatility inherent.
On this 60 Minute chart you can see the market’s reaction as the Fed covered their bases. Many of you, if you have any positions in the markets probably felt the reaction as announcements like these tend to impact multiple markets across the board. In a little over one hour’s time your 10 Year T-Note prices jumped from the 124 territory up towards 125.9. This is obviously not typical behavior. So now that the Fed has told us that they don’t intend to stop the presses so to speak, what can we do next? In my opinion, the Fed’s announcement doesn’t surprise me all that much and the jump in T-Notes pricing is actually a good thing for this moment. We had fallen in T-Notes very nicely and have already achieved some of our objectives in our strategies already in play. The announcement gave the market a nice upward pop to help some of the retracement that should be naturally occurring in this market. The advantage is that we covered a lot of ground in a short period of time which allows us now to watch for the opportunity to initiate new positions for the failure of T-Notes once more. The big picture on bond yields and note pricing hasn’t changed one bit. In the long run in my view, yields come up with or without the Fed and Notes fall down. You can also see that there is some potential profit taking and retracement of yesterday’s move already today.
To step back to a bigger picture chart, on the Week:
You can see that yesterday’s pop brought nothing new to the table. We have been using the area between 127 and 128 as resistance since June. Yesterday simply gave us a more rapid opportunity for a retracement within the recent downward trend.
Per the 60 Minute chart once more, you can see the dramatic pop post news announcement.
Gold rallied nicely, but took a little bit longer to respond than did the T-Notes. Most of you know that I tend to be bullish the metals longer term so it is nice to see this kind of natural response and even better when you see that after the push it hasn’t given much of the gain back.
The interesting chart for me on Gold however is and will continue to be the Weekly chart.
Here I have highlighted what could have been a potential head and shoulders pattern which is typically a bearish indicator. The interesting thing to me is that with our latest moves, yesterday included, we seem to have pushed well beyond what would have been the second shoulder. In a typical head and shoulders pattern the dramatic fail happens after we reach the level of the second shoulder. So in this case, having moved beyond that second shoulder, we may actually see a bullish rebuild on the trend. It’s worth watching. The area around 1400 however, really needs to become our support level.
On the stock side of the house:
The Dow responded with an upward pop as well, pushing a ballpark 200 points or so based on the events. This again is a 60 Minute chart, but my interest is piqued more by the Daily chart.
When I see this chart, my thoughts immediately run to “this can’t sustain”. We have climbed rapidly this month, granted within a channel, but rapidly nonetheless and with a steep slope. In the near term I would be watching for consolidation or retracement. If we consolidate and hold above 15,400 then you may get another burst of energy to the high side. This too is worth the watch. In my heart of hearts I don’t tend to be bullish the stock market right now so I am actually hoping for a failure, but it may take some time.
Last week I wrote about the U.S. Dollar and mentioned 80 as a comfortable place for the Dollar to reside.
On news, the Dollar failed, again no surprise with that direction, and it came home with a low just better than the 80 level we discussed last week. The Dollar at this point still lives within the range outlined last week, but should it rest here around 80, we might want to watch for even further failure potential.
News events like the Fed announcements can cause massive spikes or failures in these markets. If you have investments in any market that you intend to hold through news, you might think about using Options to create strategies to hedge those positions. Feel free to contact us directly as we can assist you in Options customizations and strategies that fit your personal goals and comfort levels.
Remember, that we are here to keep your options clear.
Lindsay Hall is Chief Market Strategist with commodities specialists RMB Group. Get the latest futures and commodities commentary from Lindsay and the RMB Group on our Big Move Trades--an online report offering trading ideas backed by research.
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