Hesitation In Front Of The Fed and S&P 1975....

The market has had a nice run up ahead of the Fed meeting that begins tomorrow, but waits until Wednesday before talking things up about the economy. Folks will be listening closely to her statements about the future. The market knows QE3 ends next month. The market can deal with that. What the market can't deal with is being told that there won't be any support for the economy should things fall apart globally, or in our own back yard. The market wants to hear that Ms. Yellen will give QE4, and, most definitely, keep rates low for basically years to come. If she gives any hint to the contrary the market will likely get taken apart. The only reason we hold up is because of Fed action and/or perceived action if need be. Once that becomes something the market can't count on the buyers will go on strike and it'll be short term.

Fed Yellen understands this fully and recognizes the market damage to come if she doesn't say all the right things, thus, I expect her to be very market friendly when her words are heard around the globe. Now, even if she does this, it doesn't mean things are going to be good for the bulls. If the market has a different agenda, then nothing can save the market. That's the reality of this game. News is taken differently dependent on where the market wants to go. Good news can be good or bad news on a given day. Just the realities of the game. So now the market is on watch as it violently thrashes about. Bulls and bears giving each other solid blows. Neither falling down. A knockout is around the corner for one side. No one knows who quite yet. Things are about to get very interesting folks.

The short-term sixty-minute charts coming in to today were overbought. All of the key-index charts were flashing 70, or a bit higher, as the day began. The natural occurrence would be for the market to pull back without a lot of price erosion, while unwinding those key oscillators just before the news from the Fed on Wednesday. It doesn't mean the market would break out, but it does as l offer up. It's not impossible to break out from overbought short term conditions, but, it is, of course, easier to do, so when the oscillators are set up from unwinding.

The selling that took place was intense at times but that's the market we're dealing with now. Lots of beta or movement, if you will, each and every day. Large swings. I'm not a fan of these types of environments, but it is what we're dealing with, and with the markets overbought, but not ready to fall too hard, it was no shock that we swung around back and forth, although in the red, all day. If you're bullish and hopeful you can't be too disappointed about things. If you're a bear you're happier, but you recognize the market still isn't in very shape. A quiet day in the red is really what we saw today. Nothing bad and nothing good for either side at this moment in time.

If we study more of the longer-term index charts such as those weekly and monthly charts, they're not very pretty for the bulls to look at and to be honest, it makes you wonder how the market has been holding up for as long as it has. Those charts are nothing short of nasty looking. Any move back up to old highs would create massive negative divergences. No way around that reality. No chance they won't form. That said, you can break out and stay with those nasty divergences for a while. Likely not forever, but you can get some time out of them. They don't, however, make you feel warm and secure about buying too much on the long side of the ledger.

When you're buying heavily into strong, powerful negative long-term divergences, it should scare you. Scare you enough anyway to at least keep things light. This said, you can play a bit long if something sets up, but you need to keep things very light with very tight stops. No more than 2% for me on any losing trades. For now, the market isn't screaming long or short, but chances are, they will shortly after the Fed on Wednesday. Stay appropriate. Respect the market the way you know you should and all will be fine.