Market Reacts to Fed

The Fed implied a continued hawkish position on inflation and in particular inflation in the energy sector. In order to do this they will have to seriously slow down the US and even world economies. The message the market reacted to yesterday was that the Fed is engineering a recession. This led to a second high volume distribution day in as many weeks. The long term trends established from last fall are still in tact and given that we are moving into the end of the month buying window we would expect that today will see a reversal from yesterday's downturn. This keeps us with our pattern of one day up, one day down trading that has frustrated so many over the past weeks. Major market trends have been sustaining some technical damage of late though and we believe it is just a matter of time before we see a more serious correction. Energy stocks are once again seeing signs of life and could be mounting another leg higher soon. It will be interesting to see how gold stocks respond to a stronger dollar; if the trend in the dollar continues the gold sector could be a short here. Many small cap stocks look like they could make another run. It is probable that some short term trades can be had on the long side with small caps, but profit protection is an absolute must in this market environment. The good news is we are starting to see an improvement in volatility levels, which should lead to more promising set ups on both the long and short sides of the fence.