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Fed There To Protect..... Overbought Stock Market Finally Unwinds.....

Stock-Markets / Stock Markets 2014 Feb 20, 2014 - 05:03 AM GMT

By: Jack_Steiman


Ok, back to basics folks. What is the job of the Fed? We've gone over this many times. The Fed has one job and only one job. To watch the stock market. When Wall Street is happy Main Street is happy. The Fed admits to understanding technical points of concern price-wise. They know when markets are in trouble, and their job is to make sure the market doesn't have too many troubles. Trouble on Wall Street means their stress level is on the rise, and that they will have to move into action. To change what they're doing. So in order to prevent that, they come out with many statements throughout each month to tell us all what they're thinking. They want to remind Wall Street as often as possible that they've got their back.

Ms. Yellen did that once again today when the Fed minutes came out at 2 PM Eastern Time. She said the Fed would adapt to changing market conditions. If the economy was weakening they would be sure to taper the taper and feed in liquidity, if need be. That just because they're tapering doesn't mean they wouldn't hesitate to add back more liquidity, if the economy once again showed major problems. The market loves this. It will continue to put a floor underneath any selling that will occur in the short- to mid-term. Make no mistake about it, we can and should sell decently from time to time. The bottom line in terms of those looking for a bear is this, the Fed will protect. With the Fed protecting, it's unlikely although never impossible, that a bear market will not be around for a while longer. Again, always pullbacks, but a bear is unlikely for now.

Today we finally saw some selling to unwind those short-term sixty-minute charts. They were getting ridiculously overbought. Unwinding was necessary, and that process is now well under way. Actually at neutral here. You want selling, and if you're patient it pays off. If you're impatient, you'll suffer the consequences, thus it's your own fault. Buying at overbought can work, but the risk reward is never great. With RSI's at, or decently above, 70 it was wait it out time. Now we're getting that unwind, which is perfect. You don't just run in once overbought is gone. You see how you pulled back and then make decisions as best you can.

There were some big breaks today in the land of massive froth. Incorporated (PCLN), Google Inc. (GOOG), and SolarCity Corporation, just to name a very few that took it on the chin today. Too many to count. Owning and buying at overbought often puts a few new traders to bed early with lessons they'll never forget. Nothing bearish occurred today. Just normal unwinding, with the excuse coming from a few Fed folks who said we should possibly raise rates soon. It won't happen, but it was a decent excuse. The next day, or so, should give us an entry, or two, we hope, but we watch and learn.

The 1800 area has solid support should we correct lower, which would be best if we did. It would be nice to actually see those short-term sixty-minute charts get oversold, while continuing to lower those daily charts on all their oscillators. Nothing bearish, thus far, but sentiment can still kick in at any time, creating some deeper selling than most think possible. We, as always, take it day to day as we learn by what's printed on price, and whether those prints are confirmed, or not, by the accompanying oscillators.

For now, keep things very light on either side.



Jack Steiman is author of ( ). Former columnist for, Jack is renowned for calling major shifts in the market, including the market bottom in mid-2002 and the market top in October 2007.

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© 2014

Mr. Steiman's commentaries and index analysis represent his own opinions and should not be relied upon for purposes of effecting securities transactions or other investing strategies, nor should they be construed as an offer or solicitation of an offer to sell or buy any security. You should not interpret Mr. Steiman's opinions as constituting investment advice. Trades mentioned on the site are hypothetical, not actual, positions.

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