Good Morning. Today is the first post QE to infinity FOMC statement. It will be very interesting to see what language the Fed uses and how markets react. Clearly the discussion today and into Wednesday at the Fed has to be concern that such a large unleashing of additional “accommodation” has produced lower risk assets. Exactly something the Fed does not want. Nor does the Fed want the market to believe the transmission affect of “such accommodation” is diminishing.
But that is exactly what is happening. Clearly there is concern and the statement today may try to address that. Perhaps the use of threats is what the Fed will resort to once again. And perhaps the Fed has realized the impact to markets is most profound when there is some secrecy to what may come in the future. It seems when it comes to additional accommodation investors want uncertainty.
I highlighted the psychology behind Tuesday’s price action with NYSE breadth closing at minus 1399 from minus 2200 earlier in the trading day. This is important. The Dow was down 250 points and there was no panic selling. It was a controlled selloff. That is what I call phase 2. It trends within model resistance