Wednesday, September 18, 2013

Post-FOMC, Expect Some Reversion

On twitter, we have discussed the breakout in both sectors and indices. That is the trend, and betting against the trend is frequently short-odds.

But there were several extremes that became present an hour after the FOMC announcement. The combination of these extremes (as opposed to each one individually) suggest at least some near term consolidation if not reversion.

SPX hit its upper trend line from the May and August tops (red dashed line).

NYMO was 87 at the close. This is an extreme. Prior examples over 80 shown with a green arrow.

Tick exceeded 1500. This kind of buying normally happens at the start of an uptrend, not after the markets have risen 11 of 12 days. It's possible that this marks exhaustion.

The 4 US indices and 8 of 9 SPX sectors closed above their upper Bollinger Band. In the past, when nearly all are at this extreme, it has been at least a short term exhaustive move. Shown below is SPX (zip zag of 3%).

September second half weakness. In particular, the week after September OpX (next week) is the weakest week of the year (post).

All of this is occurring at a time when investors proclivity for hedging has been greatly reduced.

Finally: Sell the news of the Non-Taper and the start of debt ceiling debates. Chart below via SentimenTrader and Chris Kimble: