Market Perspective: Stealthy. That is the best way I can describe this recent market rally, Stealthy. The question becomes; will the anticipatory move vindicate itself? When the FOMC meets, on Tuesday and Wednesday, I believe we will be given strong clues to help solve the mystery. Those clues won’t necessarily be readily available come Wednesday/Thursday, but rather in 3 weeks when the Fed minutes are released. This is a historic Fed meeting, as it will be the first time policy makers are showing their forecasts for when they expect the first rate increase to materialize and where each district bank expects Fed-Funds to print. I’m not so sure the greater transparency will remove the volatility immediately associated with the reports, but may help tame it in the longer-run. The “stealthy” move is evidenced with the Average True Range (ATR) of the S&P 500. The ATR has fallen from 28.14 to 18.56 since December 19, 2011, as the S&P has rallied over 111 points. In the first Wire of the year I penned, “As the New Year begins, hope is always on the table. I’m not necessarily calling for a full fledge bear to emerge, but the technicals have me concerned. Loyal readers will know that I follow volatilities carefully. One glaring obvious highlight is the recent contraction in the VIX. It now rests just above 20. This is a far cry from the 46.88 reading back in early October as the market bottomed. I believe this decline in volatility is something to pay close attention to. Reversals higher in the VIX, coupled with potential increases in Put-to-Call ratios may offer early clues that investors may be preparing for another trend lower.” This pattern has continued, as the VIX is now under 20. The Put-to-Call volume ratio has also made a large leap. However, the shift is heavily call favored. The reading is almost a 2-1 call versus put ratio (0.57). Momentum is clearly with the bulls. The equity love fest certainly isn’t being buoyed by robust earnings. Only 60% of companies reporting have beat or met estimates. This is the second quarterly slide in the S&P at this stage of the season. So, why the lift? To me, the domestic Quantitative chatter and the liquidity injection on the other side of the pond have bolstered equities and the Euro-currency alike. The S&P 500 may continue to do well should the printing presses roll. I believe this is a classic example of markets chasing the next policy shift; the anticipatory outlook. The hidden risks may be the failure of these policies to come to fruition. With trade becoming one-sided, the exit doors may quickly get jammed up. To be clear, the trend seems to be higher highs and I do not suggest fighting it. Rather, watch it for clues that may help spot its reversal.

Dollar Follow-Up: In last week’s wire I penned, “I believe we will now witness a test of strength in the Dollar’s trend and see whether or not price action can continue to push higher. The move has been well supported since the beginning of November, as pullbacks have been contained at the upward sloping 20 Day Simple Moving Average (DMA). I would consider consecutive closes below this average as a sign the trend may be weakening or reversing.”The Greenback’s strength was put to the test this past week and failed. It did not fail enough to call for a reversal or full trend failure, but rather a pause. The DX closed Friday at 80.22, under its 20 DMA. Support now rests at the 50 DMA, 79.68. Those that have read the Moving Average and Price Action report, found in our Futures Trend Tracker, will know that this requires closer monitoring and maybe suggestive that the trend is weakening. For those that haven’t requested it and want it, click the link below.

Comments or Questions? Please email al.abaroa@kingsviewfinancial.com

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