Markets Celebrate Bernanke’s Taper So Far

So far markets defy analyst consensus that a 10 billion Dollar taper with a time line ending before 2014 would have send the Dollar higher and equities lower and Yields through the roof. Instead, equities moved up to new highs while the Dollar Index gained only .42% for the week and was down .12% for the Day on Friday’s close at 80.554. The short end of the Yield Curve did move up while the long end inched down narrowing the curve on the Fed’s announcement. It seems that the markets are starting to believe in a real recovery.

The S&P pushed up to 1842 today in three waves and should move up on Monday to complete a five wave series. The Dow made it up to the 16287 before pulling back in late day trading to close at 16221. The index so far counts as a completed five wave series and could be heading down now ahead of the S&P which looks like it can move up one more wave before completing very mature wave structures. The NAS also made a new high today hitting 4114 in three waves. We should get a wave 4 and then a final push to complete its fifth wave to finish off primary degree C wave. Transportation moved up to 7298 to invalidate the one two sequence although it has failed to make a high above the Dec 2nd 7312 wave three high. The move up this week from the 7037 low so far is in five waves and could finish now as a truncation or move up extending a third wave. The major indexes are at pivotal stages and a turn south is in the making. You would think that equities would have fallen on the back of the Fed’s announcement of a data dependent 10 billion FOMC meeting taper which is to begin in January of next year. Maybe part of the reason why stocks haven’t sold off yet is because of the Fed’s watering down of QE by extending 0 interests rates past the point of 6.5% unemployment. This sounds as if its 0 interests rates forever. Keeping interest rates at 0 until whenever is an admission that the US is so indebted that it cannot handle anything higher than 0% for as far as the Fed can see. Even though markets celebrated Ben’s farewell, I don’t think it will last. Sentiment is at extreme levels with some indicators at records with stocks past due for a breakdown.

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Even though the Dollar Index moved up almost a half a percentage point, it failed to meet market expectations. The Greenback was down .23% on Friday’s close at 80.55. The buck seems to be taking its time, however, given the taper and wave structure the buck is poised to move up strongly in 2014. It is now sitting just above strong support at 88.50, which goes back to 1995. On the Daily chart, the buck appears to be in a first of a third wave. The Index moved up from the Oct 24 79.09 low in five waves before carving out a nice zigzag with a triangle for a B that equalized the A and C legs at the 70.7% at 79.74 on the 11th. The Buck has since moved up in five waves to 80.82 and pulled back 38.2% to 80.386 and settled at 80.554 on Friday’s close. The buck could pull back one more wave to the 61.8% 80.17 or move up from here to begin a third wave move. A break below the Dec 11th low would invalidate the more immediate bullish bias. The Euro moved up to a new high this week hitting 1.3814 and pulled back to test the zigzag trendline at 1.3626. The move down so far can be counted as five and the shallow correction has room to the 61,8% as the US Dollar Index does. The move up from the Nov 6th 1.3294 low is counted as a corrective three still because it has failed to take out the Oct 25 1.3832 high. A move up above this high would invalidate existing E wave of the larger minor triangle for higher ground. The USD/JPY appears to have just completed its first wave of five to finish off the larger minor five wave move up from the Oct 31st 2011 75.55 low. The Swiss Franc has also moved up from the 88.34 in five waves and retraced 38.2% of the move and closed the week at 89.61. This pair too can push down to the 61.8% before heading up in a third wave. The pound made a new midterm high this week at 1.6485 and has since moved down in very choppy action to 1.6325. This is the only European currency that still looks strong structurally. The Commodity Dollars were the strongest on the week especially after the taper announcement. The CAD and the Aussie were the strongest with the New Zealand Dollar given up some ground most of the week and finishing Friday up slightly at .8190

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The US 10 Year Yield hit 1.92 this week and pulled back a bit on the close to 2.89. The Yield has been moving up a bit bumpy yet making higher highs and lows since its Oct 23rd corrective bottom. It will be interesting to see if this move turns into a flat or an impulsive move up. It is hard to tell at this point. I strong break of the Sept 5th 2.97 high will confirm the bullish move up. If the move up is weak and momentum indicators reveal a weaker move relative to the first two swings up from the Jan 24 2012 1.40 low then we would be in a fifth wave; however if the move up accelerates and momentum indicators show strength relative to the swings up from the all-time low, then the 10 year would then be in a third wave at larger degree making the move up to Sept 5th high a competed wave one instead of a three wave move. The 30 year fell from 3.81 to 3.82 which is the lowest since Nov 29th. The 5 year note rose 15 basis points hitting 1.71 before pulling back closing at 1.68 while the 7 year climbed 10 points to 2.35 helping to narrow the yield curve 20 basis points which happens to be the most since May of 2012. Fundamentals and the charts seam to be supportive of a positive outlook for the future, however it doesn’t seem to fit why The Federal Funds Rate needs to be kept at zero with no limit in sight. Deflationary pressures are due to tight credit markets which is not a sign of a recovery.

Gold pushed down past the near term low at 1211 and hit 1187 and bounced back up Friday to close at 1202. Silver failed to confirm the move in Gold even though it moved down this week to close slightly up on Friday’s close at 19.27. Both the metals are sitting on long term support and are still above their June 28th lows. Sentiment is at extreme lows for both metals which could push them up soon. If Silver moves down past 18.92, it would confirm the move down for both the metals and would put them both in wave threes of fifth waves at larger degree. The taper should have been bullish for gold. Structurally both metals look week regardless of the negative sentiment. Inflation expectations are low and Bernanke even expressed his concern with disinflation. The Metals may be telling us so.

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