Stocks drift lower as the market digested yesterday’s move. Here is our take on today’s trading action:
Following the Fed’s announcement yesterday, the market opened higher but drifted lower throughout the session. Some participants speculated that the only reason why the markets moved higher had to do with short covering. The S&P 500 index is now up nearly 95 points without any serious retreat. If you look at the following chart for the SPY that we posted today on StockTwits, the ETF appears vulnerable to near-term selling.
It would also be quite normal for the ETF to drift back to $171 or so to retest the breakout to new highs. Perhaps participants finally acknowledged that the Fed’s actions yesterday were indicative of an economy that still has not found its footing.
When are we finally going to wake up and acknowledge that it is the Fed that creates the very monetary imbalances that eventually cause asset bubbles? This is of course rhetorical, because this is unlikely to happen. As one Fed chairman retires and a new assumes the role, one thing that remains clear is that the reckless monetary policies remain the same.
We have to trade the market as is, given the Fed, and as a result of yesterday’s decision, the party is likely to have a longer shelf life. Or put it another way, the Fed stands ready to act as backstop when needed.
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The market spent the whole day digesting yesterday’s move higher. The S&P 500 index ended the day down -0.18% while the Nasdaq Composite inched up 0.15%. Bonds gave back some of their gains during the day’s trading. As the SPY chart shows, we could be due for at least a retest of the breakout level.