Keystone's Midday Market Action 10/29/14; Fed Ends QE Infinity

The Fed decision is fifteen minutes away at 2 PM EST (6 PM London time). The S&P 500 is down 7, -0.4% to 1978. The Dow is down 44 points, -0.3%, to 16962. The Nasdaq is down 32 points, -0.7%, to 4532 receiving a stronger beating due to weakness in FB and TWTR. The RUT is down 9 points, -0.8%, to 1141. Tech and small caps lead the broad indexes lower. Equities are at the lows of the day. Dollar/yen 108.08 so the BOJ continues to weaken the yen to prop up the markets. 

The VIX is 15.98 well above the 200-day MA at 14.06 where the market bulls would celebrate (under the 200-day MA). TRIN is 1.03 dead neutral refusing to pick a side. The 10-year yield is 2.33% running higher all day long. Gold 1224. Silver 17.27. Copper 3.10. The higher copper today helps the bull case. 

Whoa. Look at that. NYA 10645. The critical 40-week MA is 10647; one of Keystone's important market cyclical indicators (see previous chart). The stock market falls back into a cyclical bear market pattern albeit by two bucks. See if it can hold today, or not. The bears are fighting back as the Fed statement release is imminent.

Note Added 2:22 PM: At 2 PM, the Federal Reserve ends QE. The Fed statement appears more hawkish. The Fed says there is a substantial improvement in the labor market since the QE program began. The Fed sees underlying strength in the economy. There is no change to interest rate policy. The ZIRP (zero interest rate policy) remains for a “considerable period of time” so this key statement is left unchanged. The Fed says that economic activity is expanding. The under utilization of the labor resources is gradually diminishing. These statements paint the picture of a stronger economy than the Fed has previously described. The Fed says inflation is held down by energy prices but the chance of ongoing low inflation is diminishing.

The vote is 9-1 with Kocherlakota dissenting. Kocherlakota is a dove. So the couple of hawks on the Fed are in agreement with the end to QE but a dove disagrees confirming a more hawkish statement. The Fed statement hints that a June 2015 target for the first rate hike is firmly in place if not sooner which shocks the market since yesterday traders expected a statement about keeping QE available on the back burner if needed. It  is surprising how the Fed downplays deflationary concerns.

Stocks collapse. The dollar spikes higher to 85.75 so the euro collapses to 1.265. The spike in the dollar spikes the dollar/yen to 108.70 due to the stronger dollar. The 10-year yield is 2.35%. Gold 1220. Silver 17.23. Copper 3.10. The broad indexes drop to the lows of the day. At 2:05 PM, SPX 1975, Dow 16945, Nasdaq 4528. RUT 1140.

Traders view the statement as hawkish so the Fed may be on target to announce the first rate hike before June 2015 which sends stocks lower and yields higher. At 2:18 PM, the SPX is 1970. Dow 16910. Nasdaq 4518. RUT 1138. The 10-year yield runs to 2.36% at a three-week high. 30-year yield 3.09%. VIX is unchanged at 15.89. TRIN 1.07 remaining neutral.

Note Added 2:25 PM: Equities are bouncing. SPX 1975. Dow 16975. Nasdaq 4532. RUT 1141. 10-year yield 2.35%.

Note Added 2:36 PM: SPX is 1980 recovering the entire drop from 2 PM. Dow 16974. Nasdaq is 4540 at its 2 PM number. The RUT is 1146 catapulting higher now a couple point above the 2 PM number. The 10-year yield relaxes to 2.33%. So after all the excitement, the stock market recovers from the knee-jerk reaction lower to exactly where it was when the statement was released at 2 PM; the RUT is marginally higher.

Note Added 2:49 PM: The SPX is down 11 points, -0.6%, to 1974 leaking lower again. The Dow is down 71 points, -0.4%, to 16935. The Nasdaq is down 34 points, -0.8%, to 4530. The RUT is down 8 points, -0.7%, to 1141. Tech and small caps lead lower. The NYA is 10621 remaining under the 40-week MA signaling a cyclical bear market for the weeks and months ahead. VIX 15.60. The TRIN inches up to 1.17 favoring the bear camp.

Note Added 8:55 PM: The end to the wild day of trading is chronicled on the Keystone the Scribe website. Use the link here or in the right margin.