And so the tapering Fed is behind us. The upper gaps are filled on the main US indexes and the lead up to FOMC was actually less irritating than normal, because markets did not chop up and down on a daily basis. Instead, they just went down (but importantly, maintained the intermediate uptrends as measured by the 50 day averages). Only when uptrends are broken would I start looking for shorting opportunities because I am not a good day trader.
Also, this measure of inflation expectations did something similar, although it was driven down to its major daily chart uptrend marker, the SMA 200. Inflation expectations were driven down handily right into the big FOMC event that everybody, man and machine alike, saw coming.
The Fed is cynical about the inflation it created, blaming it on the pandemic and supply chain disruptions, which is part of the story; a lagging part. The Fed printed the funny munny, too much of this munny chased finite assets, and that is the recipe for cooking up inflation. The Fed is now assuring us that the inflation they created will be managed to positive effect after proving not “transitory” as they originally forecast.
But this chart does show a precedent in 2004 for a situation where the Fed raises rates (per the 2 year yield, which is currently telling them to do so) and yet commodities – and thus, the inflation trades – continue upward into some future bubble blow off.
But the November-(mid) February positive seasonal (on average) is still in effect with Santa right around the corner…
…and Semi and Tech are still intact for market leadership.
So if the post-FOMC ‘buy the news’ is anything sustainable (let’s close the week before getting too party happy) we can factor in the FOMC week sentiment jitters on top of already flattened sentiment to the seasonal aspect and remain on the plan we’ve been on, which is using the seasonal as a rough guide while understanding the market’s trends were and still are… up.
What’s more, if Santa is in a really giving mood he might bring gifts for all (or nearly all), providing relief for the beaten down commodity/inflation plays and even the oversold precious metals complex. I am not predicting, but I am staying with the flow of the analysis to this point…
US stocks are trending up and thus, still bullish while global stocks are a mixed bag of bullish, bearish and some tweeners. Commodities, though tested hard, are on balance still on major uptrends and the gold sector, with its fundamentals not yet turned positive, is oversold into a positive seasonal window.
Bottom Line
Nothing has really changed with the analysis other than we’ve got the FOMC and its policy that everyone saw coming, behind us. Let’s see how the rest of the week shakes out into Santa.
