Sunday, November 17, 2013

I Am in Awe of the Fed

Wow, the train rolls on.  Based on the now widely known correlation between the Feds balance sheet and the broad market, the slope suggests a 1/2% rise in the market every week until the market decides that amount of stimulus the Fed will inject changes.

Based on the Yellen's testimony we can deduce with some degree of confidence that December is off the table, and seeing the deflation taking hold in Europe, and always in Japan, we can expect the 85 Billion is the low number for at least the next six months.

That now moves my number over 2000 for SPY in the next six months with at least a 5% correction to reset the channel and to re energize the VIX to allow vol selling to drive the low volume pumps.  The obvious catalyst is the budget showdown in mid January.  The Republicans are now in a much stronger position now that Obamacare is showing the American people what it really does, and most don't like it.  so I expect some incredible end of the world rhetoric that will drive Vix and push on the market.

I think this should manifest itself no later than the second week of December, and we will see it in XIV.  XIV is optimizing at thirty days in the future and any weakness will tell us that people are starting to protect themselve from this fight.  also by that time the Vix will be at all time lows again, meaning no more blood in that rock to short it.

In the meantime, we are coming up on Thanksgiving week which is normally bullish, and the commodities are resisting going down, so we may have a three week commodity buy area, and I have buys on JO, UGAZ, precious metals, and miners.  I am also watching oil as we had a sharp reversal on Thursday.  Below are my charts and further explanations.  Enjoy.

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