Preparing For Tuesday's Plethora Of Fed Speakers

By: Chris Ciovacco | Mon, Feb 10, 2014
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Market's Reaction Key For Stocks, Bonds, & Gold

If you were wondering why the financial markets were trading in a tentative range for most of Monday's session, the tweet below provides the answer.

Ciovacco Tweet


Taper Or Low Rates?

If the market is looking for a shift on the taper front Tuesday, it may be disappointed. From John Hilsenrath of The Wall Street Journal:

Federal Reserve officials don't appear inclined to alter the course they have set out for monetary policy, despite a disappointing jobs report Friday that raised questions about the economy's underlying strength. Central bank officials are on a path to reduce their monthly bond buying by $10 billion at coming policy meetings. At their meeting in late January, they lowered the purchases by that amount to $65 billion and will consider cutting them to $55 billion at their next meeting March 18-19.

If the market is only looking for a pledge to keep interest rates low, it may be quite pleased. From Yahoo! Finance:

All of Wall Street will be watching new Federal Reserve Chair Janet Yellen when she delivers her first testimony as Fed chair before Congress this week. Cumberland Advisors Chairman and Chief Investment Officer, David Kotok, told Breakout there was nothing in the latest employment report to derail Federal Reserve policy. "The employment report was right in the middle. You don't panic over it. You don't get excited about it." Kotok said he expects Yellen will emphasize that the Federal Reserve will not come off low interest rates. "This Fed is not about to take a fragile economic recovery and toss it over the cliff," said Kotok. "They won't do it. Yellen won't do it. The majority of the FOMC won't do it."


Stocks: Improvement, But Hurdles Remain

Last Friday, we noted some observable improvement in the market's tolerance for risk. This week's stock market video answers the question, "how much improvement took place last week?"


Fed Policy To Remain On Its Current Course?

Most market observers do not anticipate any meaningful shift from the Fed based on last week's tepid report on the state of the labor market. From Bloomberg:

"When Fed Chair Janet Yellen delivers the monetary policy report to the House, she will surely indicate that the economy remains fragile, but is growing," Kit Juckes, a global strategist at Societe Generale SA in London, wrote in a note today. "Policy is set to remain on its current course."

If the Fed were to stay on its current course that would point to additional tapering in the months ahead coupled with a pledge to keep interest rates low until economic conditions improve materially.


Current Course Still Producing A Concerning Look

If the Fed does not signal any material changes to the market Tuesday, we can reasonably expect more of the same. How has the market reacted to current conditions? The answer is "in a somewhat concerning manner". As of Monday afternoon, the weekly chart of the S&P 500 below continued to maintain a corrective look similar to points A and B below.

$SPX S&P 500 Large Cap Index INDX


Investment Implications - Market Will Dictate Our Next Move

If last week's rally in risk assets can continue and the chart above can move to a "risk-on" rather than "risk-off" stance, we will consider taking another incremental step to increase our exposure to stocks. The daily chart of the S&P 500 below has three still-relevant trendlines. If bullish conviction is strong enough to push the S&P 500 above lines A, B, and C, it will put another feather in the current rally attempt's cap.

$SPX S&P 500 Large Cap Index INDX

The tweets below speak to the need for a still balanced allocation heading into Tuesday's onslaught of Fed speakers.

Tweets

Until the market places a more convincing and sustained bid behind stocks, bonds, or precious metals, we will continue to hold a mix of stocks (SPY), technology (QQQ), bonds (TLT), and cash.

 


 

Chris Ciovacco

Author: Chris Ciovacco

Chris Ciovacco
Ciovacco Capital Management

Chris Ciovacco

Chris Ciovacco is the Chief Investment Officer for Ciovacco Capital Management, LLC. More on the web at www.ciovaccocapital.com.

All material presented herein is believed to be reliable but we cannot attest to its accuracy. Investment recommendations may change and readers are urged to check with their investment counselors and tax advisors before making any investment decisions. Opinions expressed in these reports may change without prior notice. This memorandum is based on information available to the public. No representation is made that it is accurate or complete. This memorandum is not an offer to buy or sell or a solicitation of an offer to buy or sell the securities mentioned. The investments discussed or recommended in this report may be unsuitable for investors depending on their specific investment objectives and financial position. Past performance is not necessarily a guide to future performance. The price or value of the investments to which this report relates, either directly or indirectly, may fall or rise against the interest of investors. All prices and yields contained in this report are subject to change without notice. This information is based on hypothetical assumptions and is intended for illustrative purposes only. THERE ARE NO WARRANTIES, EXPRESSED OR IMPLIED, AS TO ACCURACY, COMPLETENESS, OR RESULTS OBTAINED FROM ANY INFORMATION CONTAINED IN THIS ARTICLE.

Ciovacco Capital Management, LLC is an independent money management firm based in Atlanta, Georgia. CCM helps individual investors and businesses, large & small; achieve improved investment results via research and globally diversified investment portfolios. Since we are a fee-based firm, our only objective is to help you protect and grow your assets. Our long-term, theme-oriented, buy-and-hold approach allows for portfolio rebalancing from time to time to adjust to new opportunities or changing market conditions.

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