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Long But Hedged As We Go Into Yellen Thursday

|Includes:SPDR S&P MidCap 400 ETF (MDY), TZA

The trend momentum power remains a reasonably strong 60% bull.

No changes to the overall technical set-up, as the solid and dotted green trend averages continue to trend north in the bullish set-up position, while the hedging indicator at the top of the chart continues to advise caution and hedge longs at this time.

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This week is about the future FED chairman, Janet Yellen, who is in front of Congress on Thursday, and what she says about the FED's QE tapering plan is pivotal. If she sounds a hawk - bond tapering will happen to protect inflation, blah blah blah - then the markets are likely in for a wall of pain. If she sounds dovish - bond taping is unnecessary till unemployment improves blah blah blah - then the next leg of the blow off should start with a big running gap up.

As I often say, it is the reaction to the news that is important regarding future stock trends, rather than what the news is. If the stock market fails to rally hard on seemingly dovish comments from Miss Yellen then that would be more telling and more bearish than if she plays up her inflation fighting credentials in front of Congress.

And to make things just a little more interesting, you will no doubt be shocked to learn the FED have reserved their biggest block of QE bond buying this week for the same day, with $3.5 billion of bonds slated to be bought just as Janet speaks, which frees up a lot of money for stock purchases.

The chart below sums up the battle for the remainder of the year, as we await the end of the sideways churn and corrective action so we can begin the Wave 3 melt-up run.

I continue to patiently wait for a pullback to the red breakout line before going double up long, and continue to hedge with a small portion of TZA while the hedging indicator continues to signal the melt-up has yet to begin. The reaction to Miss Yellen should go a long way in this solving this trend/momentum dilemma.

Kevin

(click to enlarge)Click to enlarge

Disclosure: I am long MDY, TZA.

Stocks: MDY, TZA