Is The Fed Losing Control?

Today was one mighty strange day: about as bearish as can be in the morning, then a massive rally midday (due to what I never saw, although I smell a Fed rat), only to have another massive sell off in the afternoon. What was really strange, though, was the lack of sell off in lading stocks: I had only two stocks on the relative strength list that had 1.5 relative volume or higher finish negative on the day, bu a very large number that were up. The leadership list was more evenly distributed, but there, too, the gains were far bigger than the losses. In the sector ETFs you start seeing the negaive bias: XLF got hit pretty hard, while XLI, the leader, had a small gain. Since the big banks hold so much sway over the SPX, that is why the SPX was down. Now, for why the banks sold off, I have no idea, but I do know that we may be headed for trouble.

Last week crude oil rallied on the FOMC decision, but, like the stock market, gave it all back and then some. It is approaching a support level at S1, and may get a bounce here, but I wouldn’t bet on anything more than that.

By comparison, gold has done a little better, and if it does turn around here, we could be in a pretty bullish scenario. However, it is clearly stuck between pivot points, and may need a big catalyst to break out. I don;t think it is going to get one anytime soon.

At least the yield on the 10 year Treasury is doing what Bernanke intended, although it is dropping awfully slowly. However, it has no support here and is likely to fall to at least S1. he up trend has been broken, so it may be a while before we see this rising again.

The Dollar index fell to a 6 month low on the FOMC decision, only to immediately bounce. While the bounce has been weak, it is still going on (UUP was up today). The inverse relationship between stocks and the Dollar seems to be back in force, so we should be keeping an eye on this.

So far, leading areas of the market have not been damaged by this 4 day pullback, but lagging areas, especially he financials, have gotten hit pretty hard. This won;t go on much longer: either the leading areas will start getting hit, or th lagging areas will stop going down. At this point, we have no idea which.

I will have the new highs update shortly.