The most important event of the entire year happened last Wednesday. You think Brexit was important? Nah, it happened in a distant land. The U.S. election? ESPN said it was the best sporting event ever. Wednesday was the day markets have been waiting on all year long. It was the main event. Think about it. How many times did one Fed chief or another threaten to raise rates this year? Do you remember how they banged the table at Jackson Hole? If I had a dollar for every time they threatened to raise rates…The election was nothing compared to this. Many of you watch markets very closely and it would be easy to get that impression.
So, Fed Chair Janet Yellen came out and told us 2017 was to be a year with three rate hikes, not two. Can you imagine the number of good cop/bad cop press conferences these Fed chiefs will have next year? If you throw out every other factor, just on the basis of what Yellen said 2017 figures to be a very choppy trading year. Look at the bright side; it will probably be a trader’s paradise.
Everyone knows the unemployment rate is not under 5%, yet they base so much of their calculations on that. Imagine what will happen when the jobs really do start to come back. Is she going to tell us the unemployment rate is 3%? That should be very interesting to watch.
Seriously, the market got what it wanted and at least for one day they sold the news. There are certain charts that are down, namely housing. Higher rates can’t be good for the housing market. I don’t know how you put a positive spin on that. Why do they have to quantify what they might do and put themselves in a box?
A lot of charts managed to recover from Wednesday’s late action but the HGX did not. You can see where it started to get more serious, right around the Yellen press conference. But now at 38 hours down at a low price handle of 239 it ought to recover this week. Coming into Wednesday there were two key events taking place. One was the Fed meeting obviously but the Dow was still working on 20,000 which is more important than most people realize. No, it’s not just a number. It’s a number that is acting as a magnet because lots of people want to see it and likely don’t give up until they do. They got to within 34 points but backed off. As I’m writing this its 157 points away and it can gap up to 20,000 if it wanted to. Markets are non-linear, based on chaos theory/quantum physics. As such points in time like 20,000, act as strange attractors which is a fancy name of a magnet point that first attracts then repels the action.
So, they got the Fed, now they’ll get the strange attractor. We have two days to go to get to the seasonal change point. It’s a strange year, not only because of the election ( you knew I was kidding) but because Christmas hits on a Sunday this year. That means we are still a full week shy and perhaps we don’t get the lighter Christmas volume that is characteristic of this time of year until the latter part of the week.
Once the lighter Christmas volume hits, the few control the many and we could see wild swings of momentum, that being said, we still have a powerful rally working. Despite the fact housing is lower, we should still see the Dow hit 20,000 this week and if for some reason it misses before the end of the year.