Fed A Non Event for Stock Market

Stock-Markets / Stock Markets 2011 Jan 27, 2011 - 02:23 AM GMT

Someone needs to enlighten me as to why many think the fed was going to begin speaking about, or hinting at, raising rates. The economy is the stock market. The stock market is rising, based on liquidity from the fed. Raise rates, and the liquidity supporting Qe2 goes away. So again, I don't get why people thought he would begin speaking about raising rates. It's not going to happen in 2011. If the stock market falls we go in to a double dip as the real economy is not recovering. It's supported by printed dollars.

Again, based on the real world, you will not hear a word about raising rates this year, and probably well beyond that. Now, if the fed is interested in killing wealth and the economy, he'll hint at it. Until then. forget about it folks. As long as he is continuing with this process of free and easy money, there is no bear market in sight. Can't happen. Won't happen. So after he made his announcement the market meandered about like a lost soul looking to find its way. This way and that way, up and down. Nothing from nothing overall as it should have been.

The market is not going to blast off on good news from the fed as it's already a known entity. It would only collapse on the wrong words discussed above, meaning hinting at rate increases to come in the near future. When all was said and done, the fed was the non-event that it will be for the rest of 2011. Bears don't like it. Can't blame them, but it is what it is.

The market was really interesting today. It opened up flat to slightly up, and after a few attempts by the bears to sell it off, the bulls found a way to clear 1296 on the S&P 500. Got right near 1300 intraday before once again closing at the old highs of 1296. Solid action at overbought once again. The bears are finding it very difficult to find a catalyst to move things lower. Bull markets stay overbought longer than bear markets stay oversold. Always been that way and probably always will be.

The financials were a bit weak today as Goldman Sachs (GS) struggled once again off their poor earnings report. It's a bit of an anchor for this sector right now, but there have been a few not so great earnings report out of this area over the past week, or so. The good news is that overall the financial sector is holding up quite well, which is allowing the market to continue to grind higher. It is not acting in any way, shape, or form, like a bearish sector any more, even though the earnings weren't great. The market is giving this beaten down laggard of a sector a pass for this quarter. It's trying to see if they can start to get their act together.

I feel strongly that if the majority do not get going by their next report, they will start to be a laggard once again. But for now there are no troubles in this area. With these stocks hanging in the market was able to hold on to some gains at the close. The Nasdaq out performed as those stocks are the most beaten down lately due to their frothy nature, thus, the most oversold rose the best today. Solid day for the bulls once again.

The stock market lesson is clear by now to most of you. Actually I hope to all of you. You do not short a market just because it is overbought. No excuses for doing that. That's not a true sell signal by any means. it's only saying that a pullback will have to occur, but how can you safely play that? When a bull market is confirmed you won't get a pullback that is down every day, nor can you honestly say when the selling will be most intense. It's all guess work because you are playing against the trend. That's something no one should ever really do. Stick with the trend with the understanding that getting strong moves higher aren't as easy as we'd like, but if you're patient enough you can do quite well. The key is to buy stocks that have had their daily charts unwind to oversold, especially on their stochastic's, meaning at, or below, 20.

Strong stocks usually will shortly turn up once their stochastic's get oversold from previously overbought conditions. You can't time it exactly, and thus, you need to be prepared to be down on your plays short-term but ultimately, they usually turn higher in time. If you are buying stocks that are still overbought, or are just turning down from overbought, you are likely to struggle more than you'd like to. Not every play can work out, but when the daily index charts are flashing 70, or higher, on their RSI's it is likely the market will not blast higher, if at all, therefore, you must buy individual stocks that can move up against the market, or at least hang in there on the bad days. Also, avoid the frothy plays, meaning the super high P/E stocks until things are safer on the daily index charts.

At some point things will snap, but until we see the reversal stick, you can stay long, and buy not more than 30% long, would be my suggestion. Don't be a hero, or get greedy, because if you're overly involved when the real selling does hit to unwind, you won't be liking things very much from a financial perspective. Lose the greed, and remember the lesson of appropriateness. As long as the earnings are solid overall, and if the economic reports keep coming in nicely, it won't be terrible even when the better selling period comes along. Stay in, but don't overdo it.

Peace,

Jack

Jack Steiman is author of SwingTradeOnline.com ( www.swingtradeonline.com ). Former columnist for TheStreet.com, Jack is renowned for calling major shifts in the market, including the market bottom in mid-2002 and the market top in October 2007.

Mr. Steiman's commentaries and index analysis represent his own opinions and should not be relied upon for purposes of effecting securities transactions or other investing strategies, nor should they be construed as an offer or solicitation of an offer to sell or buy any security. You should not interpret Mr. Steiman's opinions as constitutinginvestment advice. Trades mentioned on the site are hypothetical, not actual, positions.

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