Waiting on the Fed (and BOB)

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Monday was the quietest volume in weeks for the Cubes (NASDAQ: QQQQ) and major stock market indexes, which are all holding their breath for Wednesday’s Fed news, which is expected to bring perhaps the final 1/4-point Fed Funds rate hike. The potentially market-moving part of the show will, of course, be the reading of the minutes and subsequent market reaction (dollar, equity, fixed income).

Some of the slogans going around Wall Street right now are…


…“one and done” and “the end [of this tightening cycle] is in sight.” The consensus view is that the market will be free to rally when the tightening cycle is removed as a concern. That may be true in some situations, and indeed may be true in this situation, at least for a short time. However, the OVERRIDING VARIABLES this time will be the dollar, longer-term interest rates, the housing market, and consumer spending — the things that are likely to cause the next recession, which we’ll call the “Bush Recession.”

We’ll probably see some whipsaw and volatility in the minutes after the press release comes out Wednesday afternoon, but the real tell will be the strength of any rally. I.e., if there is a rally, do indexes and stocks: (A) break out of cup-with-handle bases — like the one highlighted on the chart above — on major volume increases and go to new highs, then digest the initial thrust and go higher, or (B) stage failed rallies, flawed rallies, or no rallies at all. We’ll see soon. Cheers!

PS: “BOB” is an unflattering acronym coined in a previous post that I sometimes use for the new Fed Chairman, Ben Bernanke.

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