Chicagostock Trading

Chicagostock Trading

The Yellen that Stole Christmas


When the FOMC decided to place a 6.5% target on NFP rates to justify raising the federal funds rate, the SP500 was trading 1427, gold 1718, US dollar 7985, and 30 year bonds at 148.  

“… the Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent…” (FOMC 12/12/12 source).

Just days after this release, we highlighted the weakness in gold: Whats With Gold? FOMC Spooks Market. Double Top Eyes 1250.

Today, the FOMC is expected to release their final report for the year, exactly 3 years after the infamous 6.5% target.  The SP500 is up 620 points at 2047, or 43%, gold is down 644, or 37%.  Many don't expect the Fed to move. After all, the NFP target of 6.5% was met January of 2014. Every few months a talking head came out, suggested a rate hike, only to never take place.  When the target was met in January 2014, the SP was just above 1800.  A minor dip down to 1732 was seen, only to recover, and once again, never look back, rallying 23%. For the past 2 years, the market has been bluffed into thinking a hike is in order, especially after the target of 6.5% was met, only to see the Fed not budge, forcing many on the wrong side to join the bull party. Just from the January 2014 dip of 1732, the market rallied 23% (402pts) to 2134 this year. How did we get to this point? Last year was the year of the V bottoms and head fakes. We began January with a V bottom, July with a V bottom, and October after correcting from 2000 down to 1813, Fed talking head Bullard gets another V bottom as the market's retraced to 1970.  Remember the lows were never retested, after the V bottom short squeeze, the BOJ came out on October 31st and surprised market's with a $700+ billion dollar stimulus.  This was dubbed as the Halloween day massacre as buyers were not given the opportunity to buy a pullback or look for the market to base out, however were forced to chase the market above 1970, which gave way up to 2070.  Since then, this year, we saw 1970 put up a big fight early in the year to hold as the line in the sand.  Finally in February the market once again squeezed to new highs as bulls played defense.  To start the second half of the year, July saw the market rally through 2100, luring in buyers, only to fail in making new highs, setting up a bull trap and reversing to take out the July lows leaving buyers on the hook. Longs were flushed as the market took out the July low, falling down to retest and hold last October's low.  After a squeeze back to 2000 in September and retest of the August low, another V bottom ensued, seeing the market recover the September break back to 1970.  Once again, exactly repeating last year, BOJ steps in at 1970 and helps the SP rally another 100 points up to 2070.  Giving buyers and the FRB another attempt at 2100, only to stutter.  

To start this month of December, the market attempted to break through 2100 on the first trading day only to setup a bulltrap.  On December 2nd, Yellen reiterated the potential for a hike this month, seeing the rug pulled underneath longs and derailing the "Santa Claus rally" as the breakout above 2100 was rejected and the market closed on the lows. Since this high, we have seen the market fall back to retest the October 14th low of 198250 and has most recently held.  Longs above 2040 are currently on the hook and await Yellen today to be rescued. As they are already caught on the hook looking for the "Santa rally", they are now hoping Yellen comes out today to rescue them and save their Christmas. Only thing is, they have already been warned.  Maybe all the times the Fed bluffed in making the market think a hike is in order and not hiking, finally has bulls stubborn.  Transparency? Not really. The main thing we need to look at is the BOJ bought the feds one year, and another 2 months since this last October.  Plenty of time from the BOJ for the Feds to make a move. As we look over this past year, it has really been a year of consolidation and head fakes, with the market not going anywhere.  We've seen more supply then demand above 2100. This latest break below 2040, has longs above 2040 trapped from the last 2 months that will need to be rescued today.  Failure to see longs rescued above 2040, has sell stops under 198250 at risk to see next major support into 1943, to fill the gap from October 2nd, followed by 1890 to retest the August lows. It is one big game of musical chairs between the central banks, and thanks to the BOJ again, the FRB was able to buy another year of time to come up with a decision, if any, on interest rates.  Losing 1970 will not only leave longs above from the past year on the hook, but also the BOJ.  The reason the short squeezes have been so violent over the past year is because the bull is playing defense.  Every time the bull gets cornered, he comes out swinging, putting up a big fight, before tiring out once again.  He does not want to lose the trend, and it is a freight train as we take a look at the weekly chart above, as it has been fueled by 0% rates, and QE. Sometimes it takes a bit of nudging before finally falling off the tracks. A big battle to hold the trend, or see it turn.  When it comes down to today's rate decision, at the end of the day what difference does it make? The goal is deception, try to get as many on the wrong side, to get fuel for the market to move the other way. Going forward, next major buy stops seen above last Wednesday's 207975 cash high, and sell stops below Monday's 198325 cash low.  

Keep an eye on where the traps are set.  It is the traps that give the market fuel to move in a direction. 

$ES_F SP500 Futures inverted cup/handle pattern w FOMC bulltrap. Cash open <1941 traps bulls above for bears to press

— Chicagostock Trading (@Chicagostock) Sep. 21 at 10:04 PM

$ES_F Pushing 9/28 cash highs 191175.

— Chicagostock Trading (@Chicagostock) Sep. 30 at 02:53 PM

$ES_F Halfway in attempt to completing Friday's 1928-1883 reversal... $SPX$SPY

— Chicagostock Trading (@Chicagostock) Oct. 5 at 08:18 AM

$NQ_F Cup/Handle formation if sellers unable to get paid....We are in the "handle" creation period = #chop #vbottom

— Chicagostock Trading (@Chicagostock) Oct. 7 at 07:45 PM

$NQ_F Looking like push above target objective 4690 only gravy/bulltrap. $QQQ

— Chicagostock Trading (@Chicagostock) Nov. 12 at 07:17 PM

$ES_F SP500 1970 October, take 2. $SPY $SPX

— Chicagostock Trading (@Chicagostock) Oct. 6 at 06:39 PM

$ES_F Bulls trapped > 2040 await Janet to save Christmas

— Chicagostock Trading (@Chicagostock) Dec. 16 at 11:22 AM

Update 12/16/15 1:50p CST:

And on the 3 year anniversary? the Fed....

Fed Funds rate raised to .25% 



Pre-FOMC Market Update
The Great Reset