A.M. Update

Good morning.

I think we've been pretty clear about near term expectations, in last night's, Daily Wrap I included the a quote from Tuesday's Daily Wrap,

"I think I have been clear about what I expect from a market bounce, an oversold bounce, not something that is supported and to that end, today put in the second Hindenburg Omen in a row. The last two clusters sent the market lower so this also fits with our near term and longer term analysis."

And from last night's post,

"Today there were some short term signals and some migration of bounce signals to some longer term charts, however I think this may be a scenario in which short term nose is mistaken for something credible that's developing, at this point it's difficult to say,  but I think the only two things that really matter right now are #1  an oversold bounce off 5-days of decline and the worst 3-day start to January ever recorded. And #2, that the bounce will fail making it a great opportunity to sell or short in to"

I have touched on this topic numerous times recently, but most precisely in The Plunge Protection and Market Correction Team in which a slightly different view of the F_E_D and PPT is taken.

After seeing accumulation for a bounce build with so-so lever support from assets like HYG, but seeing several HY assets moving up as if they were assured, it's hard not to buy in to the theory above, not just the plunge part, but the downside part too, which ever side of the market the banks need them to be on after last night, F_O_M_C voting member Charles Evans told reporters that "Raising rates would be catastrophic" and that a rate hike could be pushed back to 2016 or beyond which is clearly not what the minutes said, but since the minutes didn't get the job of ramping a cycle that was already set up as early as last week (Thursday/Friday), I find it interesting that 4 or so hours after the close a F_O_M_C voting member would says something like this on the day the minutes didn't ramp the market in line with the accumulation cycle that was set up in advance.

If we look carefully, we have seen F_E_D speakers both ramp and send the market lower with their comments, but those comments always came AFTER the cycle's accumulation or distribution was in place, for instance,  James Bullard has acted in both capacities for example at the September 19th highs when distribution was clearly established...

"We should be willing to remove accommodation" which sent the market down to the October lows, a near -10% move depending on the Index and whether looking at the lows or the close.

Then, before the F_E_D decided to end QE and only 1 month later at the October lows, Bullard now turns from bad cop to good cop and says,

"A logical response at this juncture is to delay the end of QE"

Which sent the market higher on a huge surge which we had already called a week in advance as there was large accumulation ahead of time. Only a month after that he does a 3rd 180 with,

"Economy in good shape, no need for more QE right now".

Again the point is, I think by limiting the perspective to the F_E_D's comments to "Plunge Protection", you are missing the bigger story. I have maintained since 2009 that QE was a stealth bank bailout as the real bailouts in 2008 and 2009 were deeply unpopular with the voting public, but few traders understood QE, how would the average Joe Public? They wouldn't and thus by this transmission mechanism, Institutional banks had entire quarters without a single day's trading losses, a bailout of sorts and now that QE is over, it's the F_E_D mouthpieces saying things and recanting or doing 180 degree turns a month later, all depending on what the market needs and in EVERY case, has already set up for.

I'd encourage you to read The Plunge Protection and Market Correction Team and at least consider the possibility that this is not a one way street, it's whichever way the money is positioned to continue to do what the F_E_D probably can't afford to do anymore and that bailout banks, it doesn't matter if they are making money long or short, as long as they are making money.

After Bullard and now Evans for at least the second time, can they get any more obvious than this?


Otherwise nothing has changed, I still expect the bounce we are seeing and still expect it to end the same way, I just wonder if there will be F_E_D help on the downturn as there was in September, not that the market needs it at this stage.