BarroMetrics Views: Dec FOMC – A Post Mortem
Last night, I was wrong on all counts – at least so far as the FOMC decision last night was concerned:
I had taken the view that there would be no tapering, and if there were, we would see a decline in the US stock market, a rally in gold, and a decline in the US dollar.
What happened was the reverse; US stocks were up, the US dollar was also up (at least as far as the AUDUSD was concerned), and gold was flat.
One saving grace for the evening? The Hanna “Post FOMC Patten” working to a tee. And, while I don’t normally day trade, last night was a successful exception.
The price action last night behoves me to consider whether or not, the thesis under which I have been operating, is incorrect – at least as far as the US stock uptrend is concerned.
No doubt you are aware that, in the past 18 months, I have held the idea, that for US stocks, I had to be “long or out”.
And, the reason why I thought I had to be ‘long or out’, was because I believed that QE had distorted the price mechanism. As a result, an underlying sentiment had been built into the stock market that the Fed would prevent it from moving down.
If this idea was correct, then any sign that the Fed support would be coming to an end would result in US stock markets declining.
Consequently, I had expected a taper to result in a strong down move for the S&P. But, we did not see this last night. And, unlike the Non-Farm Payrolls, I did not see any suggestion of Fed intervention in the S&P futures market.
Now, I’m not prepared to abandon my thesis based on the price action of one evening. However, what I would do, is to take notice of the price action and to entertain the possibility that my original scenario was incorrect.
At this stage, it’s too early to tell, and it’s too early to abandon the thesis. However, if the market continues to move upwards into the end of January, 2014, at that point, I shall probably abandon it.