Gears Clashed as Traders Try for Positive Spin on FOMC Minutes

02/22/2018 2:37 pm EST

Focus: MARKETS

Gene Inger

Editor, The Inger Letter

Gears clashed repeatedly on Wednesday as traders tried hard to put a positive spin on the FOMC Minutes, with a 2 o’clock rally as expected, writes Gene Inger who’s presenting Tuesday at the TradersExpo in New York.

I indicated that they should be selling rallies, not buying, for some days, as you know. Wednesday was no exception with respect to fading S&P 500 (SPX) lifts. I suspect most managers focused on strategies we’re warned were near their limits for a couple months now and are truly flustered here in New York at the thought of being forced to unwind serious income-tactic positions.

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More important is the deflection level technically. For now, it surmounts concern about when rate hike sequences formally validate what we’ve thought the market would do for the Fed in-absence of an official bump in the Funds Rate. 

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That deflection level has a lot to do with the March S&P 2750 level I’ve pointed to repeatedly and even earlier Wednesday indicated it would take a miracle to see that overcome or even attacked with the essentially drive trying to take the market higher. 

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The odds of failure were there, and these days nothing stays calm very long; hence you risk these increasingly frequent and swift somewhat algo-driven up-and-down S&P swings.

We’ve cautioned all we can.

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In sum: the pattern action closely resembles what I’ve called for over a month now: cracks in the pattern; crash-alert (conditions prevailing) from January 25-26.

Days later we got the flash crash and my idea even in-advance was a belief (with all the money sloshing around) that they wouldn’t surrender on a time; but perhaps given a little time.

Hence the call for a rebound off the 200-day moving average of the S&P, similar for the Dow Jones Industrial Average (DJI) with the NASDAQ a bit stronger, but the prospect of it being for trading only.

And that’s the point. This was not going to be a Turboglide market with a series of imperceptible shifts through an advanced torque converter, but a clashing of gears as the market finds direction.

I believed at minimum more testing of the flash crash lows would be required before any solid Spring rally (if there even is one worthy of the term).

And that’s why the rather unenthusiastic call for traders only to buy the crash lows, and for the vast majority to both lighten-up in-advance of the crash. And then on the recent rebound to sell more.

Markets and strategies shifting into reverse as gears are clashing.

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