Post-Fed Musings

The Fed confirmed today what was already tipped – it will extend the maturity of its holdings and continue to buy mortgage debt. The bond market was delighted, the commodity and equity markets, not so much. A few thoughts on the reaction:

With the Fed program so widely anticipated, I thought the long bond had pretty much priced it in. Wrong. The yield plunged to 3.039%. A 2 handle is pretty much a foregone conclusion; when you get this close to a round number it sucks the market in. The 10 year yield is now sub 1.9%. Amazing.

The Dow transports were off more than 5%. You don’t often see 5% daily moves on the transports – in either direction.

The small caps, several large cap sectors, and quite a few blue chip stocks broke down out of the bear flag patterns we described a couple of weeks ago.

Several foreign market ETFs made new year to date lows on a closing basis.

My regular readers know I am one of those stubbornly optimistic types – we’re still in that range on the SPX that we outlined a month ago, and the NDX is still above the June low and the 50 day – but it’s getting increasingly difficult to find cause for optimism. We’re heavily overweight cash and eager to come off the sidelines. Not giving up hope yet, but I put the warmup jacket back on; it doesn’t look like we’re getting in the game very soon.

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