Good morning,
The markets have declined for 5 days, and have been trading sideways for 2 days. Normally you would expect a big rally higher, and it is not out of the question today. Today is FOMC day so I am expecting a quiet day except for a little volatility on the back of the IFO numbers released out of Germany later today.
The only real activity in the market right now is hedge funds and mutual funds trying to mark up prices going into quarter end. This may largely be successful but time is running out and I am shorting every rally from here onwards. I am only doing it in small size for now because I have got absolutely no confirmation that a top is in. As a matter of fact it would not surprise me to see the Dow around 9450 by 2nd July. It will just make for a better short. If the Dow takes out the 61.8% level at 9345, then the next target is above 9600.
I will just repeat what I wrote about Fed days yesterday:
FED days
Today will see the beginning of the 2-day FOMC meeting in the US. This should not affect stocks too much today. Tomorrow, however, is likely to be a low day. The way I play the Fed days are based on observation. The minute the announcement is released you will see a spike. Then you see some kind of counter spike before a third spike. Since 2000 I have followed the Fed days and this is always the pattern. Essentially the first spike is the direction the market will go once the dust settles. The second spike is the fake spike, while the 3rd spike is continuation of the original impulse. This usually takes place over 45 minutes or so.
The SP500 held the 975 area. I will be inclined to favour the long side above 982 and the short side below 977. If 975 is taken out we will see 965.
Most of the financial companies in the US are now shorting material. At this stage my strategy will be to short weak rallies but if I see a momentum move, I will stand aside and wait for a better opportunity. The long side seems the most dangerous side now. If the bulls can’t rally now the decline will be swift and detrimental. The news beginning to appear on Q2 earnings does not call for the growth, which has been expected.
The Expected Path
I have looked at the parameters once again, as you have to, when you expect a SD day (stuck down day) and instead you get a rising day. I have thought about stopping the model until it was in a better mood. However, I feel that would be defeating the object of the posting. It is usually very easy for me to see when the model is working and when it isn’t. I have had some amazingly accurate days with the Path. I am confident it will return to true form.
