Daily Wrap

There's a lot of buzz about Jackson Hole this Friday when this time last year Bernanke let that QE2 cat out of the bag. In fact I think there's too much buzz about it and expectations are ridiculous, just because he choose that date a year ago that he would choose it again this year. Taken with the Aug 9 FOMC statement, it sounded a lot like the Fed wasn't up for doing much of anything for sometime.

Remember all the hype about the last FOMC statement and surely Bernanke was going to hint at QE3, it was the total opposite, yet the market still did this...

And then two days later went on to rally.

This chart doesn't fit at all if you look at the nature of the markets.

Tops and bottoms are processes, not events, yet last Thursday we had a sharp sell-off as you can see on the chart, I warned of this sharp sell-off the day before and said it would be coming over the next two days as it did in this post. So maybe it's not quite time to give up on that theory as it has played out so far just about as expected.

Today's trade was technically insignificantly significant.

Although we gapped up, there as a negative divergence on the open, so I didn't expect it to hold, what I was interested in seeing was how the close held and for the most part we were flat to a bit green. This reminds me of two things, 1) A base is a process and 2) accumulation and distribution (in this case because of where price is it would more likely be accumulation) are often found in flat, range bound trade.

That's what happened at the last bottom, despite the huge daily moves.

The volatility wouldn't cause you to think this was a flat area, but it was.

As for today's P/V relationship, it came in dominant at Close Up and Volume Down...

This is generally a bearish P/V relationship, but they must be considered within the context of trade. Had we advanced 1.5% today, I'd call it bearish, but being we were flat, it's actually not all that bad.

The market isn't tipping its hand clearly quite yet, but there was a lot of bad news out of Europe, especially in the way of spreads on CDS, yet the market managed to hold it together. I'm still a bit fixated on the July 29th Fed/Primary Dealers meeting and the market falling the next day. I don't think we've seen a conclusion to that meeting yet.

If we compare volatility and similar price action, we come up with a time period that was similar to Jackson Hole/QE2, this is part of the reason I think it's just too obvious. People are comparing the 2007/2008 top to now and there are similarities, there are bound to be, but as Mark Twain said, "History doesn't repeat, but it rhythms". I think we need to be careful in drawing conclusions based on a past that was very much different then the present.

Here's the VIX chart vs the SPY (red).

 The volatility is similar, the price action is similar, but we have to be careful with expectations beyond that. The Fed's attitude is very different right now, however, I do think it would be amazing if the Fed came out with a blockbuster that moved the market much higher given the meeting with the PD's the market reaction and the 3C readings.

I'm going to browse some more harts and see if anything is sticking its head up, most everything seems to be laying low today. I'll follow up should I find an interesting nugget.