Stocks Play Waiting Game As Fed Meets; End Mixed in Lighter Trade

June 23, 2009

The long awaited $40bn 2 year Treasury Note auction happened and was deemed to be a success. Stocks didn’t pay much attention to the news and continued their lackluster trade which began from the get-go. Volume ran lower for much of the day suggesting insitutions mainly stayed out of the market’s way on Tuesday. Not too many traders are willing to step in front of Wednesday’s Federal Reserve Statement as well as another Treasury auction; this time $37Bn 5 year notes. Tuesday’s market action was not particularly bearish but it was not positive by any stretch of the immagination.

In the scans I run today was the first time in a long time I have seen a dramatic decrease in the amount of fundamental sound growth companies. The significant drop is quite worrisome as many leading stocks have been breaking down. Although they could be forming bases they certainly aren’t signalling strength at this point in time. The lack of strength from leading stocks is quite concerning and is spelling some trouble for stocks ahead.

Given the weakness in leading stocks, we aren’t heavily shorting this market. If we get a correction it may set up bases in stronger growth companies. This isn’t late September of 2008 where it was clear you should get heavily short. At this time, we are at a crossroads where there is a possibility of much lower equity prices. However, we aren’t seeing signals that would clue us to get short heavily. We certainly are testing the short waters and will look to continue down that path if the market continues to send signals it is the right side to be on.

Tomorrow we’ll more than likely see very light trading accompanied by very little movement in prices. It will not be until the Treasury auction announcement at 1pm EST and the Federal Reserve statement at 215pm EST will get any sort of action going. I just don’t see any statement the Federal Reserve can make would evoke a rally in stocks. Rates are already basically at 0% and annoucing buying more Treasury notes is simply monetizing the nations debt (which throughout history has been proven disasterous). The Federal Reserve should begin to take down the massive pumping of money that is in the system. Secondly, they should begin to allow the free markets take over the “target rate.” Artificially lowering interest rates only promotes malinvestment and creates waste. The market is certainly foreshadowing a nasty turn post-statement release.

The best thing to do here is to continue to make sure you aren’t over extending yourself on either side of the trade and keeping your losses in check. Always remain positive and focused.

Posted by MarketSpeculator | Filed Under Market Commentary