Topsy Turvey

Look out for more twists and turns this week.

A week from Wednesday the Fed will gather and then make the announcement of its monetary stance. The boys and one gal must tread cautiously. Its all about mind games and managing expectations. The Fed knows the markets are like Oliver Twist, just begging for a little more porridge. The glop in this case is Quantitative Easing or QE2, or money printing.The two ends of the scale: Under delivery vs expectations means a dollar rebound and a rout in stocks and precious metals. If the Fed says it will take up QE on a slow meeting to meeting basis that will be under delivery to the markets which will make a 2 year old's temper tantrum look like a whimper. The opposite side of the spectrum, the Fed tips its hand to massive QE. Stocks will rally, dollar tanks, metals skyrocket. The Fed will do its best to keep expectations somewhere in between. Any evidence that more, or less QE is coming will swing the markets to and fro in the days before the meeting.  Yep, gargle with Maalox each morning.  Ultimately, the Bernanke Fed has no choice but to do QE to infinity. It's just that they won't make that prospect too clear lest a pitch fork brigade descends on Washington.  

 

As for the elections. There is bound to be conflicting projections on who is going to win, or lose.  The stock market has priced in the Republicrats to win over the Demoncrats by taking at least the House and a number of State Houses. If the Reps fail to deliver, look for some tankage in the markets.

In sum, the market of stocks is coiled to move higher. Technically the set up looks good as the S&P 500's 50 day moving average has crossed above the 200 day (a golden cross). The Dow Transports have also been receiving some love and appear to be in a pattern of moving even higher, which Dow theorists see as a positive signal for the Dow Jones Industrial Average. Still, some angst in the week ahead can't be ruled out  with the coming cavalcade of news events. Banks also remain a wild card