I came into today a chest pounding, snarling bear emboldened by a combination of a substantially positive January (leveraging gains during big up months is crucial) and all cylinders firing on the short side of our portfolio.
The boost given to the market by AAPL was of no concern to me whatsoever. As I detailed last night, I felt that the market would use AAPL as an excuse to relieve some downside pressure before resuming the downtrend at some point in the near term.
The historic about face from the Fed, however, was something entirely unexpected. At least by me. Let's not beat around the proverbial bush here: Today's near complete reversal from a hawkish stance to an extremely dovish stance was historic in proportions. It speaks of a Fed that has been compromised because:
- They are either beholden to the President of the United States
OR
2. They are beholden to the stock market
In either case, they are basically telling us that we are a few negative economic data points away not just from a completely halt of QT but a resumption of QE. More than anything else, this was the message from today's Fed.
The question now becomes where does this end? Once the Fed has justified carrying a balance sheet that is bloated beyond any relevant historical comparison, why would they have any problems bloating it a little further and then further still?
The answer is very simply that they wouldn't. The answer is that the Fed has told the markets that their balance sheet normalization wasn't anything more a short-term exercise that was neither concrete in intention or in execution.
Delving deeper down into what all of this means, it is obvious that the economy is much weaker than anybody expected at this stage of the expansion. The Fed isn't simply ruining their reputation on a whim. They are obviously seeing data points that worry them to the point that they don't care. They know the economy can't handle any further tightening, regardless of how badly they want to get to a 4% Fed Funds rate and a balance sheet that resembles anything close to what they had in 2010.
With all of this said, the bear case that I was only too happy to embrace pre-FOMC has been compromised post-FOMC.
Realizing this as the trading day wore on, I covered short positions that had the potential to harm us the most. I took profits on NVDA. I took a small loss on our C short. I also took a small loss on our KL short that I initiated just yesterday with the idea of a more hawkish Fed being US Dollar bullish and therefore, bearish for gold.
This is a foggy spot to be bearish and a precarious spot to be bullish. I'm guessing that there will be an abundance of clarity in the days and weeks ahead, at which point I will only be too happy to act boldly in one direction or another. However, for the time being, I want to be protective of our gains for January.
That's pretty much all there is to it.
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