Thursday Outlook: First Move Is the Wrong Move

September 23, 2009



DON’T FADE THE BEARD?

The old maxim, “the first move is the wrong move” was operable today regarding Fed announcements. This isn’t always the case clearly but I’ll pull it out of my “maxim quiver” today.

The text below from today’s Fed announcement, with no dissent, is what got sellers motivated. Why? Because the statement has a hint the punchbowl may run dry in the future. With markets much overbought and still forward looking, it gives investors a chance to take profits.

“To provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve will purchase a total of $1.25 trillion of agency mortgage-backed securities and up to $200 billion of agency debt. The Committee will gradually slow the pace of these purchases in order to promote a smooth transition in markets and anticipates that they will be executed by the end of the first quarter of 2010. As previously announced, the Federal Reserve’s purchases of $300 billion of Treasury securities will be completed by the end of October 2009.”

Let’s look at the market reaction. Volume picked up with selling which has been another signature of this market—lower volume on up days, higher volume on down days. It’s a disturbing pattern highlighting distribution after rallies. Breadth was negative.

click to enlarge

Go to page 2 - Commodities, Global Markets >>

Comment on this article >>