Wednesday, August 1, 2012

One down; two to go ...

We had the first big event of this week today when the Fed's Open Market Committee (FOMC) wrapped up their two day meeting with an announcement that while they were prepared to intervene should the economy continue to weaken they were on hold for now.

Although most pundits had predicted that the outcome of this meeting would turn out as it did the market didn't like it and equities ended lower on the day while the Dollar surged:


Here's the Powershares DB US Dollar Bullish Index and I've pointed to the day's price action with the white arrow.

Those who were hoping for Gold's comeback were disappointed today as well:


Gold has been turned away from resistance at $1,625.00 since the beginning of June.  As I've stated a number of times in my blog posts and commentaries, until we break through this pivotal resistance Gold's prospects are tenuous at best.

Stocks seem to be hanging in there until you look "under the hood".  The Russell 2000 Small Cap Index literally "fell out of bed" today:


Notice the long red candlestick (black arrow).  I've been pointing to the weakness in the general market for a few months now.  The biggest take away from this chart is that the Russell has fallen out of the channel delineated by the two purple dashed lines.  The S&P 500 seems to be on the verge of following it's little brother:


The same type of channel (in this case a rising wedge; a bearish chart pattern) is ready to be violated. 

Tomorrow is the next big event.  The ECB meets and will announce at 8:30AM EST their plans to address the growing crisis surrounding periphery debt, in particular Spanish bond yields.  Draghi is on the hook after his "whatever it takes" speech last week.  Given the price action of the Dollar and Gold the market doesn't believe he will deliver.  I originally thought he would but I'm not so sure now.

It's been a tough week if you're a short term trader in these markets.  It was one of those weeks that you could have flipped a coin and had better success than if you studied.  I'm not complaining because I'm straddling the market.  But my prediction that the Dow would reach post crash highs by Friday will probably be wrong unless the ECB pulls a rabbit out of its hat in the morning.

And then there is the monthly employment report on Friday ...