Wednesday, October 13, 2010
After yesterday's FOMC meeting the Federal Reserve issued a statement indicating they are leaning toward quantitative easing measures and perhaps a second round of economic stimulus. In plain English, they will likely be buying more treasury bonds to drive down loan rates and continue a weak dollar strategy at the risk of future inflation.
So while we continue to be nervous about the overly bullish market sentiment out there, the fact that the dollar base that was potentially forming gave way changes the picture somewhat for as we have also been saying, a weaker dollar likely means higher stock prices; especially in manufacturing and heavy equipment companies that are likely to continue to see sales increases from overseas buyers.
The semi conductor sector in particular has been taking a leading role of late and with Intel beating estimates yesterday, things continue to look good for the sector, which could push the QQQQ up into the $50s setting it up for a retest of almost 10 year highs.
We will be partially unraveling our short hedge position today and adding at least one long position. However, before we are completely out of the woods, we need to see QQQQ actually break resistance here and we need to see follow through higher today as opposed to an ugly fade-the-Fed day, which isn't unknown following strong late day rallies spurred by the FOMC statement.