Post-FOMC
The first line of the FOMC statement yesterday was what I assume they wanted us to pay the most attention to. It was packaged with a view of moderate growth and other standard things that standard economists look at.
“Information received since the Federal Open Market Committee met in January suggests that economic growth has moderated somewhat.”
and later…
“The Committee anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen further improvement in the labor market and is reasonably confident that inflation will move back to its 2 percent objective over the medium term. This change in the forward guidance does not indicate that the Committee has decided on the timing of the initial increase in the target range.”
So the very first line in the statement was a dovish one and later they basically told us that nothing has been decided yet. These people are slick, I’ll give them that. They managed to drop “patient” in line with majority thinking (thereby looking firmly in control) but at the same time they are setting up to look like sages if the economy continues to show signs of deceleration (hey, they noted economic moderation in the 1st line of the March statement!).
Send in the clown cars… center ring. I am sure we will be treated to a variety of Jawbones between now and the April FOMC.
So the Fed has now cracked the door open just a tiny bit toward the view of an ongoing big picture economic contraction. Gold (counter cyclical) vs. Commodities (cyclical, with CRB used in place of the usual CCI, which is no longer available at stockcharts.com) bottomed last year and so moderated economic growth should not be surprising.
The road map is intact even though the road itself has been a long and winding exercise in patience (and not getting lost). The distance between the 2011 arrow and the 2014 arrow on the chart below was a cyclical downturn (economic bounce) within a secular structure of gold rising vs. commodities. Now it has bottomed and turned up, notably along with USD, as it should.
The economy lagged the mid-2011 high in Gold-CRB (by about 2 years) and an economic downturn, if that is what is in the offing, would lag the low in mid-2014 (by 2 years?). Just riffing here, but the theme seems well tuned and playing in concert with events.
I read something by anti gold guru guru Martin Armstrong talking about the Fed giving in to pressure from other countries to remain dovish. That is a cartoon that is easy for masses to understand. He says that the Fed must raise rates when the Dow goes over 20,000 so that when the economy falls flat they will be able to drop rates again.
We are in a secular phase of global economic contraction and on this phase, that has nothing to do with the stock market. Policy has a lot to do with lofty stock prices. With the strong dollar and wavering economic signals, the Fed has every reason to remain easy as pie. I do agree that if stocks proceed higher into what would be commonly perceived as a bubble, they might feel pressure to pop that bubble. But I learned long ago not to try to out guess the Fed. Just keep the light of truth exposed upon them and we’ll be fine.
Stock Market
SPX rebounded to the top line post-FOMC. While the headline indexes like SPX, Dow and NDX are all below their highs, momentum players like the RUT and BTK are at all time highs. It remains a dangerous market for bulls and bears until something gives. Either the momo stuff reverses or the major indexes go to new highs as well.
The US market remains at a decision point. Sure, it should be ready for a correction. 2000 on SPX would be a nice and neat pullback to refresh. But as yet, leadership has not only not relented in the Biotechs…
… it has regenerated in the Small Caps (target 1350 +/-).
Bottom Line
I do not want to be bearish against this until given clear signs of technical weakness or breakdowns. Much like when we noted any real bull market in gold stocks would give plenty of time to get aboard (on tests of support), any real bear phase in broad stocks would give plenty of opportunity to get short (on recoveries to resistance). Meanwhile, swing trading, profit taking (loss limiting) and cash management is a personal preference. I enjoy it.
Precious Metals
Last week we reviewed the Sentimentrader “puke” analysis that showed a likelihood for a bounce (at least) and a strong rally (at best) in gold stocks. Here is the updated chart of HUI from NFTRH 334:
The bounce objective has been to around 180 and a gap fill.
Beyond a bounce to relieve the pressure, the sector would need fundamentals to come in line. In particular, it would need short-term yields to stop rising in relation to long-term yields and it would probably need the stock market to stop rising in gold terms. These remain the holdout conditions to a new bull market.
The 10yr-1yr has not gone anywhere yet.
And gold vs. SPX has not either.
Bottom Line
If a rally continues it is not indicated to be anything but a trade pending a) HUI defeating the 180 (+/-) parameter and even more importantly b) macro fundamentals.
We will continue to track all of the above, along with global stocks, commodities, currencies, etc. and tweak the plan as usual along the way. Meanwhile, it will pay to tune down the cacophony in the media and from the gurus and just listen to the rhythm of things.
