TheSlayer's Market Thoughts

SPY daily chart on July 17 2013

Today, Wednesday, July 17, was another Ben Bernanke event day, and it went pretty well, all things considered. His testimony was greeted warmly by the market, as his comments were considered "doveish." One surmises that Ben has changed his mind about the importance of the market since his callous and heedless comments in May caused a near-crash. He suddenly is being a little more circumspect, mindful of the enormity of every twitch of his beard at these public events. The other Fed Governors are keeping their big mouths shut a little more, too.

Apparently, the Fed no longer wants to corner the market just on mortgage-backed securities, for it is now buying treasuries outright. It's kind of an odd change, since the Fed basically is simply buying with one hand what the Fed is selling with the other, but somehow it works in the new world of finance. As usual, the long-term implications are murky at best, but nobody is too worried about the long term in this market. We mentioned a few weeks ago that the sudden rise in mortgage rates was probably due to something the Fed was doing differently, and this is probably that very thing. The Fed isn't always as forthcoming at the time it does things as Bernanke likes to pretend.

The SPY continued what I am now calling a "stealth rally." That is, it is moving higher without seeming to at all. Rather than the big overnight surges we have seen recently and that also were the case a couple of years ago, now we are seeing tepid overnight sessions and fairly tepid day sessions as well. At some point during these day sessions, though, the SPY almost accidentally or mistakenly moves up to new highs, then promptly pulls back as if to say, "Oops, sorry, didn't mean to do that." The E-mini futures actually established a new all-time high by a tick at 1680.50, but nobody seemed to notice, which was bizarre, but hardly the most bizarre thing about this market. Normally, these thin "topping tails" would suggest a reversal area - but we cannot say enough times that this is not a normal market.

Most of today's volume - in fact, almost all of it - was between 1675-1678. That is higher than any previous day in, I am pretty sure, all of market history. The balance of value thus shifted higher, even though the day looked from the price chart as if it were simply a sideways move. A head-fake to the mid-1660s overnight was not repeated during the day session.

Looked at a certain way, maybe with your head turned sideways and squinting, the last few days might be interpreted as forming a bit of a dome pattern. Much more likely, though, is that it is another of the seemingly endless series of Bull Flags.

There are a dozen reasons why this market should crack and fall straightaway to the 1500s, but the problem is that it shows no signs of doing that. We remain, against all our better judgment based on twenty years of trading experience, convinced that the market will continue moving higher from here, probably to the 1700 vicinity, before we see a real pull-back. We also expect an eventual correction (maybe next year, who knows) that will scare the pants off just about everyone, but not right now. Going up just is what this market does, and we are in no mood to fight it, especially with Bernanke now suddenly committed to supporting it.