The stock market saw a bit of a sell off today as the FOMC statement and press conference took place. The entire statement can be read here but basically the Federal Reserve continues to stay the course of tapering it’s bond buying program by another $10 billion a month but drops it’s 6.5% unemployment rate threshold.
The S+P 500 chart above depicts how each of the three tapering statements has been digested. The initial announcement in December of 2013 saw the markets move substantially higher. The second announcement was not greeted as well as it kicked off a 60 point drop in the S+P.
Today’s announcement traded more like the last. So I think if the market spends much time below it’s year to date break even point (yellow horizontal line) a similar drop taking the S+P to 1815 and 1770 is quite possible.
Gold, still outperforming by a clear margin, has seen some recent short term selling pressure as it nears a key pivot high at $1434. Today’s drop marks the biggest correct seen in Gold year to date. Near term support comes in roughly at $1330 but expect some short term volatility around this level as there remains a lot of “congestion” left behind in a cluster of swing highs and lows.
One pattern I see in Gold is the day after each taper announcement has taken place, Gold has ended in the red. This is quite a small sample size to get any real edge one way or the other. The next potential downside pivot I see is the low at $1308. This would be almost exactly two times the size of the last short term correction (a common occurrence) and the midpoint of the entire run up from it’s low at $1180.
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Interest rates spiked today as bond prices fell. The yield or interest rate on the 10 year treasury bonds rose over 3% today. An interesting observation is denoted in the chart above, the horizontal lines show the settlement price on the days QE 1 was announced. This most recent trading range has engulfed those two prior pivots and it appears interest rates are higher now, then when they were when QE 1 was expanded by over $1 trillion of MBS and treasury debt/securities.
