I want to start with the Euro (chart below), because so much of the leverage that is driving risky assets up and down is a result of currency Carry Trades. The uptrend in the Euro is now at day 44. Vertical moves like this tend to reverse (or at least pause) in the 45 – 49 day range. I have included resistance levels used by technical traders (and no doubt computer models). The inverse of The Euro is the US Dollar.
Here is the chart of the S&P 500. Key resistance is at 1,140. The setup is there for a reversal and the most bearish scenario would be a break above 1,140 that quickly fails and takes out the 20-day averages at 1,115 and 1,096. If that happens, I will update the chart with support levels.
If key resistance is broken, then the downtrend reverses and technicians start to look at 1,276 and 1,349. We should have a pretty good idea of whether or not 1,140 will hold over the next few days.
US Treasuries have been rallying since the first batch of Quantitative Easing (money printing) ended at the end of March. The 30-year Treasury now faces another set of potential resistance.
Gold has managed to hold support at $1,150 and has now reversed its downtrend from June. Key resistance is the $1,220 – 1,228 range. I will fine tune my support levels later this week.
Conclusion is that the decision of the Fed will impact Stocks, Bonds, Currencies and Commodities. That is the world in which we now live, because there is too much production capacity and vacant real estate, so the only money keeping the economy from contracting is money printed by the government – look at how bad the economic numbers have been since March ended (and Quantitative Easing ended).
Last week, Greenspan said that a rising stock market would do more to improve the economy than any additional stimulus or bond purchases by the Fed. Rising asset prices is a policy tool so expect them to keep spending money they don’t have until the Bond Market revolts and forces them to stop.
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