SHORT TERM: FED announces QE 3, DOW +207
Overnight the Asian markets gained 0.1%. European markets opened lower and lost 0.3%. At 8:30 weekly Jobless claims were reported higher: 382K vs 365K, and the PPI was reported higher: +1.7% vs +0.3%. US index futures were lower overnight, but the market opened unchanged at SPX 1437. The market then started to drift higher, hitting SPX 1440 by 11:30. Then after a pullback to the opening level, SPX 1437, by 12:30 the FED released: http://www.federalreserve.gov/newsevents/press/monetary/20120913a.htm. The market immediately soared as the FED announced QE 3. At 2:00 the Budget deficit was reported higher: -$190.5 bln vs -$134.1 bln. The rally continued until around 2:30 when the SPX hit 1464, and the FED released their economic projections: http://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20120913.pdf. After that the market pulled back to SPX 1458, and then closed at 1460.
For the day the SPX/DOW were +1.60%, and the NDX/NAZ were +1.40%. Bonds gained 15 ticks, Crude rose $1.10, Gold soared $33, and the USD was lower. Medium term support for the SPX now rises to the 1440 and 1386 pivots, with resistance at the 1499 and 1523 pivots. Tomorrow, we get reports on Retail sales and the CPI at 8:30, Industrial production at 9:15, then Consumer sentiment and Business inventories at 10:00.
The FED had hinted on a potential QE 3 during their FOMC minutes released on August 22nd. The market closed that day at SPX 1413. We noted, on August 30th, the probabilities of a QE 3 were at their highest since the summer of 2010. The chairman’s speech at Jackson Hole, August 31st, did not add anything further. The market closed that day at SPX 1407. Today the FED announced they would start purchasing, outright, $40 bln/month in MBS and USB until the economy strengthened and the unemployment rate declined. This is in addition to some $180 bln in MBS that will be purchased through the end of the year in Operation Twist.
Now we have Europe’s ECB making unlimited purchases of short term securities in selected european countries, and the US FED making unlimited purchases of long term securities in the US. The ramifications of such a two-fold event will take some time to sort out. Our first response, subject to change, is new all highs in the US stock market.
Today’s market action was quite good for the medium and long term. This uptrend has now rallied to our fibonacci resistance at SPX 1463/64 for Intermediate wave iii. The market is extremely overbought short term, and a pullback of some degree would naturally be expected at this point. Adding to the possibility of an Intermediate wave iii high, is a negative RSI divergence between Minor wave 3 and Minor wave 5 on the daily chart. Since this does look like an important level we’ll treat it as pivot. This would imply: this rally continues if SPX 1472 is reached, or it rolls over into an Intermediate wave iv pullback if SPX 1355 is reached.
Short term support is now at SPX the 1440 pivot and SPX 1422/27, with resistance at SPX 1463/64 and the 1499 pivot. Short term momentum is extremely overbought. The short term OEW charts remain positive from SPX 1412, with the swing point now at 1432. Best to your trading!
MEDIUM TERM: new uptrend high
LONG TERM: new bull market high