Fed Day Tomorrow

I have played a lot of poker in my life and one of the things I have learned is that I will only play cards that allow me to make strong bets throughout the course of the entire hand. Otherwise, it is too easy for me to get shaken out of a potential winner.

That is some of what has occurred the last few days. I committed money into legitimate setups into strong stocks and strong sectors, but was easily shaken out of those trades via tight stops, because I am concerned that the markets need to correct and will most likely do so very soon. Oh, and there is massive intra-day volatility, which moves some positions 8 to 10 percent in a matter of an hour or two…

Besides, volume has been very light and until it shows up, this rally is extremely suspect.

The Fed is meeting today and Wednesday, so expect the usual fireworks at 11:15 am PDT tomorrow. Believe it or not, but rates now sit higher than they were when the Fed announced that they would buy $300 billion of US Treasuries. There are clearly too many sellers and too much new debt being issued by the Treasury each week for the Fed to be able to cap interest rates with only $300 billion. I think the Treasury will borrow about $390 billion this quarter. We are now just printing money…

I will continue to focus on the areas that historically lead new Bull Markets – Semiconductors (Technology), Financials (less so here, because their numbers are fraudulent), Retail, Energy and Materials (Raw Materials for building stuff). My intention is to build positions in these areas and hold these positions for several Months or Quarters – normally I would say years, but I am not sure that is possible over the next Decade or so. The reality is that it is very difficult to not get shaken out of holdings at these levels. A pullback will offer much better entry points.

Semiconductors (SMH)
SMH broke out of a 4-month trading range as it broke above $19 (Green Line). It now needs to pullback into the mid-$18 range to make it comfortable for me to be able to buy it and hold it.

Maybe the market goes up 500 points tomorrow on the Fed committing to buy another $300 billion in US Treasuries… If that happens, then maybe I am looking for a pullback on SMH to $21. That will be fine with me. I want to make money, while risking as little as possible. Even with this recent rally, I am still over 40% ahead of the market since late 2007.

Technology (XLK) is extremely extended and due for a 10 – 20% pullback. That would set up a chance to buy it.

The same goes for Retail (RTH), Materials (IYM) and Large Cap Growth (IVW).



Energy
Crude Oil (USO) has already had a nasty pullback into support over the last 22 days. It has given back 62% of the recent rally. It is now a buy on a pullback to $26 or a breakout above $29 – hint, everybody else can see this on the chart, so expect to be whipsawed about if you enter this thing. A move above $32 would confirm the Feb 19 low and would force a hell of a lot of money to flow into USO in a very short period of time. The Commodity ETF (DBC) has a similar chart pattern.

I expect the stock Market to play out like USO is playing out – a high, followed by a shakeout, setting up the potential for a major breakout that forces a lot of money in from the sidelines.

Regardless of what sectors do in the short run, I do not expect to feel comfortable committing money until the Market has a correction of this rally.