Do Not Nurse A Kid Who Wears Braces

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Economists predicted the end of Quantitative Easing by the FED. They also predicted no premature rise in interest rates. Economists timely and on the correct side of their predictions-kind of amazing except when you consider that pretty much any astute person could read between the lines regarding the Fed. They have been unwinding the bond purchases, have done it slowly and have double-talked to allay fears with their vague commitment or lack thereof concerning rate increases in the future.

Wednesday, ahead of the FED announcement, for our monthly live coaching we do as part of the premium service, we (Keith and I) talked about volume. Not only why trading liquid instruments for anything less than position swing trades makes sense, but also, how to look at Intraday, Cumulative Volume along with Accumulation and Distribution of volume. We further discussed exhaustion or blow off volume patterns.

Focusing on the indices and their daily volume patterns, all saw blow off volume Mid-October. Since then, looking at NASDAQ in the last 2 weeks, QQQs had 3 Accumulation days of volume (when the price closes green and the volume exceeds the day before). Typically, 3 days or more point to more positive or more upside. Further dissecting the QQQs chart, we see low volume on Wednesday; for a sell off-that’s good. We see an inside day or pause in the action. Furthermore, Wednesday’s action yielded relief of near-term overbought conditions with lots of room to the upside if QQQs can clear 100.56 the 2014 high.

Going out on a limb, the FED and Janet Yellen turned off the spigot at a perfect time. A mother doesn’t just wean a child of her milk and then let him/her starve! First, she ascertains if the infant has grown enough and if the immune system can sustain itself. Then, mother feeds her child a more diverse diet, with a combo of liquids and solids.

Mama Janet has backup for sure (if deflation worsens i.e.). For now, to place a feather in her cap and in the market’s as a whole, the bullish bias remains. However, there is a bib on the baby, just in case it spits up.

“Here a pretty Baby lies
Sung asleep with Lullabies:
Pray be silent, and not stirre
Th' easie earth that covers her.”

S&P 500 (SPY) 196.83 the 50 DMA to defend with a lot of overhead resistance to deal with

Russell 2000 (IWM) Confirmed the accumulation phase change which means as long as Wednesday’s low holds, lots of room upside

Dow (DIA) The 50 DMA is 168.81 place to defend

Nasdaq (QQQ) 100.56 the 2014 high, inside day-good one to watch

XLF (Financials) Closed right at 23.44, conveniently the next point to clear

KRE (Regional Banks) Overbought yet in an unconfirmed phase change to Accumulation

SMH (Semiconductors) Confirmed bullish phase and not overbought

IYT (Transportation) Took a rest but still looks fine

IBB (Biotechnology) Knew the possible runaway gap was not really possible up here-not the first place to go on this next leg up in market if happens

XRT (Retail) Confirmed phase change to bullish if holds 86.75

IYR (Real Estate) Good consolidation

USO (US Oil Fund) No positon but very interested to see where this bounce develops

XLE (Energy) Has to clear 86 to keep going

FCG (First Trust ISE Reserve NatGas) Respecting the slingshot low from earlier in October and now has to clear 16.00

TBT (Ultrashort Lehman 20+ Year Treasuries) TLTs 120 pivotal unless this begins to break further below 117.50

UUP (Dollar Bull) A close this week over 22.76 is really good