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The Fed's Rosetta Stone


There's not much wiggle room even for these masters of parchment and parsement.

Let's play Twister; let's play Risk.
See you in Heaven if you make the list.
Moses went walking with a staff of wood.
Newton got beaned by the apple good.
Egypt was troubled by the horrible asp.
Mr. Charles Darwin never called to ask.

-Man on the Moon (R.E.M.)

"Money has a way of making people do things they wouldn't otherwise do, particularly when they are getting paid to play."
–Todd Harrison

"A rose is a rose is a rose."
-Gertrude Stein

"It is a tale told by an idiot, full of sound and fury, signifying nothing."
–William Shakespeare

Give me a break. Can anyone sell the Street a Rosetta Stone cheap, so it can make heads or tails of the FOMC hieroglyphics? As Gertrude Stein might have said, "A Rosetta is a Rosetta is a Rosetta."

Where's the Promised Land of transparency in this Fed Fog?

Professor Lewis sums it up best in his post on the Buzz and Banter on Thursday.

The reason for the Fed's oblique opacity and opaque obliqueness is that there is not much wiggle room in the Pandora's box that Greenie gave Ben as a going away present. There's not much wiggle room even for these masters of parchment and parsement. It's Benjamin and 'Benjamins' in a box.

Let's call a spade a spade. Boom-Boom is Pom-Pom. The Chairman as Cheerleader. A Fed emasculated by excess stimulus pushing on a string. Goldilocks is Cuckold. They've been neutralized. Checkmated by China. The Fed can't tighten, although they would probably like to; they can't loosen, although if I was a betting man, (and I am), I'll bet they'll have to – before the end of this year.

But none of this will stop the Street from laying odds and laying off risk- cheap; from romancing the statement and gaming the price action. The bulls never met an excuse to rally that they didn't like. Trading desks never met a market that they didn't want to milk. Ergo the most recent episode of Hoofy and Boo on Copacabana Beach – Thursday's FOMC Cha-Cha-Cha. Hope you didn't get caught in the thong.

So why did the rally attempt fizzle out on Thursday? Was it just another squeeze with Daisy? Whatever the reason, traders sold into the rally as the S&P tagged the underbelly of its 20-day moving average. Pretty classic stuff technically speaking.

The interesting thing is that on the first break in June below the 20-day moving average, the S&P rallied back to recapture this Holy Grail line in the sand. However, this week's break represents the second loss of the 20-day moving average. So, it is not surprising that given the market's recent loss of momentum that the 20-day moving average would reject the S&P this time around – at least initially.

Despite all the gyrations on Thursday, the S&P left an N/R 7 Volatility Signal, the narrowest range in seven trading days. Whether Thursday was a pause-day prior to an attempt to attack the 20-day moving average on Friday in a bull market in the summer remains to be seen. But, Thursday's fizzle and flat close suggests the market is struggling with some liquidation in front of quarter end – unable to fully capitalize on friendly fire from the Fed.

Be that as it may, the majority of institutions have to be long for quarter end. Consequently it will be interesting to see how much window undressing results next week when the B team takes over the levers on the trading desks from the varsity.

Strategy: The S&P left a strategy minus 1, plus 2 sell signal on Thursday in tracing out three consecutive lower lows, followed by two consecutive higher highs. The index may have to circle the wagons and do some work prior to attempting another attack on the 20/50-day moving average convergence.

If no substantial selling materializes by mid-day Friday, heads up for an attempt to stampede the market late today.
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