LUKE WARM

Today was the day that was going to change the market according to many-think back to Goldman Sachs rosy predictions of multi trillion dollar QE2. After a month or more of speculation regarding QE2, it came in at market expectations pretty much, not enough to excite the bulls into a 200+ point rally and not disappointing enough to send the averages packing. As I said earlier and last night and often, the initial knee jerk reaction is often reversed within a few days, however today's reaction wasn't anything to write home about, I'm not even of the opinion it was knee jerk; it was more or less like any other day. Still I would anticipate that there will be a stronger reaction in the days to come.

In fact, the afternoon rally that took us from the lows of the day seemed to have nothing to do with QE at all, but rather just the market following the dollar again. See the charts below.

So even the rally at the end of the day didn't tell us much about the market's opinion regarding the Fed's QE2 announcement.

On a personal note, I don't see today as a particularly bold move on the part of the Fed, it seemed more like half measures, but I do believe there will be European reprisals should the dollar continue to fall, then the currency wars that we were on the brink of, may actually get under way as Europeans won't standby and watch their exports squashed.

Pimco's #2, El Erian didn't think much of the Fed's QE either. To sum up his comments “QE2 will backfire”.

The long side of the bond market didn't think much of the announcement either as bonds on the long side of the curve were crushed today.

I highlighted some of these charts yesterday, the longer ones were crushed or down and the shorter ones put in a luke warm performance.

I'm guessing it will take a few days for smart money to start making up their minds where they want to be positioned and how they want to be positioned. I didn't see anything today that seemed to tip off the Fed's intentions unless we consider the bond charts from yesterday, but that's speculation on my part.

I think people were looking for a big market reaction today, the lack of a big market reaction suggests one of two things, this event was priced in, or it will be priced in.

I don't need to go on and on about money flows out of mutual funds and other economic data, we all pretty much know where the economy stands. However one possible wild card will be new Congressional oversight of the Fed by Ron Paul as he takes over the position of Chair of the Monetary Policy subcommittee. It's no secret that Ron Paul has been very vocal and very critical of the Fed, in fact it makes me wonder if the election may have tamed down Fed ambitions as they'll be called to task by Ron Paul.

Although last night I said that GLD was set for a downside reversal of the bounce 3C picked up last week, I was very surprised by the depth and the aggressive nature of the selling-the dollar was totally uncorrelated to this sell-off as the normal relationship would have seen Gold up.

FAZ managed to hold support today and I continue to believe that financials are a prime target for short selling. BAC and JPM both bounced a little today as 3C has been suggesting and if they continue a little higher, they'll be in a very high probability/low risk area to short them. There are many, many others as well as ETFs that are worth keeping your eye on and I've already set alerts and watch lists for stocks in the sector.

So in my opinion, it's a wait and see over the next few days to see what reaction the market moves toward.

I'll be adding trades as they set up, there are a lot of great trades out there on both sides-look at the continuation I talked about last night in LLNW which is at a nice profit since it was featured, but the key to these types of trades remains to wait for the fat pitch, the high probability move and as the market dictates the direction of most stocks, a solid market reaction is key to picking out the best looking trades.

The rally that we have seen thus far is on par with the rally we saw from February to April and in many ways it looks a lot alike. In some ways it looks worse and for averages like the Q's, the price appreciation looks better, but as I have pointed out in breadth posts, you can have two rallies that are exactly the same in % gains, but that does not mean that they are at all as strong as each other. Breadth readings on this rally have been horrible. I continue to believe that this rally is going to fail and when that happens we are going to be looking at a situation that looks like this: QE hasn't worked for the economy in bigger size so today's half measure seems like a complete waste of money. Unemployment is not showing any signs of reversing its trend, the banks are very close to being in the same situation they were in during 2007/2008 and the next GDP # to come out will likely continue on the path it has been on since Q3 of 2009-down

Negative 1 min divergences

Just came in on the QQQQ and the DIA at the top around 3:12

PBR

Anyone think it's ironic that CNBC was pumping PBR and emerging markets/commodities before the Fed release, then the president of PBS is on right after the Fed announcement?

Something to consider

PBR has thus far done essentially nothing since the announcement.

Update?

I don't know that there's much I can add at this time that you don't already know. Equities overall, the indices are just vacillating. One thing for sure, the market didn't take this well at this point. I think it's going to take a day or so before we settle into the sentiment here, maybe less, but some of the things expected, such as the dollar falling apart, as of now, is more or less neutral since the announcement. First the dollar dropped and then it regained.

Bonds have certainly not been shy about how they feel and we saw this yesterday, I think a few of you who emailed me entered the short bond trade-congratulations thus far.

3C right now is kind of useless as we see this kind of churning volatility, at some point when the market settles, we'll be able to see a lot more.

Keep an eye on the dollar though.

Obviously, it seems pretty certain that last night's after hours pump was a setup and left some people holding the bag.

Post Fed Update

This is not exhaustive, but the one equity that is really moving and not bouncing around are the treasuries which yesterday I showed the very negative divergence in the treasuries. Here's TLT-one of the equities that 3C showed big distribution in.

1 min before, volatility has started.

Pre Fed Update...

I'm not seeing anything really out of line or particularly noteworthy. The SPY still has a 1 min positive divergence, the 5 min has gone nowhere, it's just in-line. The 10 min has gone into a leading negative divergence.

The DIA 1 min is in line. The 5 min. is inline. The 10-min on the DIA is the opposite of the SPY and it is in a relative positive divergence.

The QQQQ has a very slight 1 min positive divergence, nearly in-line. The 5 min has a positive divergence. The 10 min is in a bad negative relative divergence, which is almost a leading negative divergence.

The IWM is inline on the 1 and 5 min charts and a relative negative divergence on the 10-min chart.

GLD is showing pretty much nothing in the short term between 1-10 min charts.

The dollar proxy, UUP is in a positive divergence in the 1, 5, and 10 min charts.

If there's a leak here, I don't see it.

Update

It looks like at least the SPY and DIa may be preparing for a bounce soon. They've lost a lot of ground this a.m. and bargain hunters are bound to step in.

Update

Looking at GLD and SLV tank, while the EURO/Dollar trade has barely moved is a strange event. I don't know if this is a shakeout or someone knows something. If it's a shakeout, we should see some buying right before the announcement, otherwise I'm not sure what to think, but there's no real catalyst for a move this big this fast. Something is definitely going on here.

GLD Pull Back Over?

Of course the Fed's announcement could change everything in a blink of an eye, but 3C has been showing not only the bounce in GLD, but the end of the bounce. As I said in last night's analysis, GLD set up a reversal formation (downside) called a Harami despite it being up nearly .5%, today we are seeing a pretty nasty drop thus far-the really spectacular sight on this chart is not the drop, it's the volume this early in the day.

 First arrow shows a top in GLD on a negative divergence, the second shows a top in the bounce and the small third shows what is quickly leaning toward a leading negative divergence, the most aggressive kind. I hope some of you made some money in this trade.

Here's the Harami pattern from last night-"Mother with baby" and today's confirmation of the reversal signal, but more importantly, higher volume already today in the first two hours.

Update

I didn't draw in the divergences because at this point, I think you'll be able to spot them pretty easy on your own. The huge jump in after market that we saw last night, I speculated was a possible bull trap, it looks like this morning, that's exactly what it was. There was no rationale at al for institutional money to accumulate at significantly higher prices a minute after the close when they could have had them at much lower prices during the day. This is the danger of an illiquid after market and the danger of reading too much into after market action. It was really just a matter of common sense since NOTHING was announced after the close that would give any reason to buy like that in after hours.

Here's the 3C charts on this morning's opening.

It's not hard to see the negative divergences at the tops as I mentioned yesterday, that is distribution into higher prices and setting shorts likely by big institutional players and they've already made a profit off them in the first two hours of trade.

Reports...

IF you can trust any of these reports anymore, I'm not sure that you can, but if you can, then ISM and the ADP number came in with decent beats today. This, considering the Fed already has the information, does not bode well for a big stimulus package if they perceive the economy as getting better or if they want to give off that perception. Considering no stimulus has done much at all, they might just be better off going with a placebo and seeing if they can inspire confidence by not panicking.

That's just speculation, we'll know son enough. As I cautioned last night and every time the Fed speaks, beware the initial knee jerk reaction; I can't remember the last time that this didn't hold true.

Strategy or just crushed?

Last night, or more precisely, at 4:00:01 the After Market went nuts, now with the opening, just about anyone who bought last night is either underwater now or very close. that raises the question I raised last night, was it a setup? We'l find out soon enough, but the simple logic of it was flawed, unless it was a setup.