Thursday, December 18, 2014

Yet another brief Morning Call

The Morning Call


The Market

            Helped along by a more dovish than expected Fed statement, the technically oversold market bounced early in the day and then short covering pushed on the afterburners in the afternoon.  Both indices (17356, 2012) closed back above their 50 day moving averages and the Dow finished back above its former high support level---which are quite positive.  However, before we can assume that the current downtrend is over, the Averages, at the very least, have to trade back above the upper boundaries of their developing very short term downtrends (circa 17483, 2023). 

            ***overnight, the Swiss central bank imposed negative interest rates on foreign capital inflows.  For all practical purposes that is an easing move on top of the Fed meeting.

            The main reason for the euphoria over the Fed statement/Yellen news conference was that (1) the Fed weaseled its way out of corner---raising interest rates next year.  Not that it won’t lift rates next year, it just gave itself more room not to without looking like is changing its policy and (2) Yellen downplayed the decline in the price of oil and its potential impact on the economy and the banking system---which as you know has been a driving force behind the recent Market decline.  How you can be so nonchalant about a 50% reduction in the price of one of the primary economic inputs and its impact is frankly a bit unsettling.  Her statement is very reminiscent of a similar one by Bernanke in 2008 about how little risk there was in the housing and mortgage markets.  Not that all will turn out the same; but the circumstances seem hauntingly familiar.


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