F_O_M_C Statement

The F_O_M_C policy statement seemed kind of bland, no QE, but rather an extension of operation twist through 2012, specifically, purchase treasuries with a duration of 6-30 years and sell treasuries of 3 year less.

A couple of things stand out here, first the reaction in the long dated end of treasuries and yesterday's analysis of TLT (long dated Treasury ETF)

TLT sees a pop on the policy statement.

These are charts and their commentary from yesterday's analysis of TLT linked above...

  As mentioned, there seems to be accumulation here which is odd considering it usually trades opposite to the market.

The daily chart is even more positive, this is why I suspect something positive will be announced tomorrow in the Treasury space.


I can't say these charts reflected a leak or inside knowledge of the F_O_M_C policy before hand because the extension of Twist isn't such a wild idea, however it seems clear that smart money was expecting policy action that would benefit long dated treasuries as these charts showing accumulation are from yesterday as is the commentary below them.


Also specifically from yesterday's analysis...


"I shouldn't be speculating like this, but after looking at the Risk Asset close and some other indications, my best guess is that the F_O_M_C will disappoint the market with a lack of QE, in fact I don't even think it will be mentioned (as in the Jackson Hole Speech of 2010) beyond some possibly more dovish than usual, "We stand ready with an array of policy tools to step in should market conditions warrant intervention" or something along those lines. This may bring the market pullback I've been expecting and the Euro may be the catalyst for the short squeeze, meanwhile GLD I expect to pullback, but most probably be accumulated for QE possibly later this year. By the looks of treasuries, I would not be surprised if some policy adjustment was made that may be favorable for treasuries."

As you know that was a gut feeling based on the charts, but thus far (we have to discount the knee jerk reaction), it seems to be right in line with the policy statement.

As for the market, we are at about unchanged on the initial knee jerk reaction, however we'd be up huge right now if QE3 were announced, this fits pretty much with yesterday's "SPY Full Update"

" The 3 min chart is negative after being in confirmation, but it's really not that bad, again, it looks more like the kind of divergence seen at a pullback."


"I suspect a pullback as I have maintained for the last 2 days, from there it looks like the market has plenty of juice left."


As for GLD, this is one asset class that would have gone through the roof on an announcement of QE as it did the last two times. From yesterday's update...


"I would think if smart money knew what the F_O_M_C was going to do (and we have seen instances in the past in which it looked very much like they have known in advance-not often, but there have been several very odd instances) it would be reflected in gold. "IF" the F_O_M_C creates some sort of QE3 program, historically gold has been one of the biggest beneficiaries."


As you may recall, we weren't seeing that kind of action in GLD that would have suggested a QE3 announcement, specifically...

" The 30 min chart shows the breakout to the upside-the exact opposite of what technical analysis teaches and 3C showing distribution in to that big move up and a recent negative divergence as well. To me, it looks like GLD is coming down."


"Everything looks like GLD will fall, which would suggest, "If smart money knew what the policy statement would be, it doesn't look good for QE and doesn't look good for gold". There's only 1 problem...

The daily chart..."

"This shows GLD negative in to the highs that formed the left side of the triangle, there's a positive at support in December, then GLD is run back down and now there's a positive at the support area from May/June.

If I had to guess, I would say there's no QE and GLD comes down, however perhaps there's QE later in the year.

I would think for GLD to come down, the F_E_D would not hint at QE coming. That's just my initial thoughts."

Thus far all of our analysis seems to be right on track, we may be seeing the typical knee-jerk reaction, however everything in the policy statement seems to be consistent with the themes outlined above.


I think it is more likely that this statement (another 180 reversal ) from Merkel is what the market is reacting to (this was also part of our analysis-"The Euro short squeeze would be what gets the market running higher")


MERKEL SAYS BOND PURCHASING BY BAILOUT FUND A POSSIBILITY


Now we have 2 more events at 2 pm (outlook) and 2:15 (questions).


I'm going to take a look around and see if there are some opportunities in what appears to be the "initial knee jerk reaction" that is typically reversed.