More on the Fed's Policy

If any of what is being rumored about the Fed's policy stance turnaround is true, and I can see that it could be considering the language about QE3, then an interest rate hike and some of the other measures being talked about would have an effect on the $USD, a bullish one.

Considering the FOMC meeting was so recent and this rumor is so far removed from the language of that meeting, they must have some data that is very scary. The Fed doesn't want to be "perceived" as wishy-washy, I can't say for sure whether they really care about being wishy-washy, but they don't want that perception.

So lets look at the dollar which I've been taking for granted lately.

 What we want to look for are things out of character. On this daily chart, the recent volume since the 28th of April has certainly been out of character  as it's 2-3x the average volume. We often see big volume at reversal points in a downtrend.

 The longer charts aren't showing much yet, but the 15 min chart is showing a positive divergence that started on the 28th, the same time volume increased.

 We see the same on the 10 min chart.

And more of the same on the 5 min chart.

This would be a major disruption in market psychology and may be a partial explanation of why we are seeing such broad weakness in energy, precious metals and commodities in general.

I've looked at several hundred charts today and I can't recall an energy stock that wasn't being beat down. This is a broad index of energy stocks and to be down 3% today, plus yesterday's weakness I mentioned, is out of character.

 The CRB commodity index has seen two of the nastiest back to back days in awhile.

GCC is another commodity index under pressure.

We know what silver looks like.

The net effect on the market would probably send a lot of traders and funds scrambling to unwind the leverage they've been using at multi-year highs. The market itself is not fond of interest rate hikes and truth be told, we all know that the Fed has been behind the market's rally through QE/POMO. If that is all coming to a crashing halt, then.... you do the math.