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Ignore the Fed…For Now

Today the Federal Reserve minutes suggested that they may start to taper bond purchases sometime in the future. The market sold off on the news. I’m ignoring the news and the market’s move until Friday. Over my 30 years of investing and trading I’ve observed that the real direction of the market after Fed announcement doesn’t usually appear until the Friday after the minutes are released.  The algos take over the first day, then it takes a day or two for money managers to decide how they want to be positioned in light of the news.  If the market rebounds by Friday then there is a good chance the uptrend will continue.  While a continued sell off will most likely mean more selling ahead.

One thing to note about general market sentiment is that small moves lower in price are once again causing large shifts in sentiment.  The chart of the Nasdaq 100 (QQQ) below illustrates the point.  The underlying numbers show the bulls getting quiet while the bears are getting louder.  This increases the odds that the market sees lower prices in the near future.  I’m seeing the same in the charts for small caps (IWM) and the S&P 500 index (SPX).  QQQ is currently on a consolidation warning after a whipsaw.  SPX and QQQ have cleared their warnings, but will most likely warn again if the market doesn’t recover over the next several days.

 
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