Zak Mir – Ahead Of The Fed

Over the past few weeks I had been busily writing a mini book on my top 10 favourite AIM stocks both long and short exclusively for this publication. In that time, while the 12,000 words were being extracted from what is left of the Zak Mir brain, it would appear that the world has become even more of a 1984 style place than it was previously.

We have been treated to news doses of Big Brother watching every move you make on the Internet, yet more phone hacking, this time of foreign politicians, another £28 million wasted at the BBC (nothing new there then!), and of course money squandered and lives lost under the umbrella of the NHS. Of course, we are told that we have a moral obligation to pay our taxes which is correct. Unfortunately, it would appear that morality when it comes to spending this money is still a work in progress. Rant over!

One of the places that our money has been active over recent years is bailing out the financial system, something which occurred on both sides of the Atlantic, and which we will be updated on later today via the Federal Reserve. Recent weeks have seen equity markets wobble on fears that the open-ended QE programs may about to be wound down. The effect of this is actually being more apparent as far as the weakening dollar is concerned and of course the fall in the T-Bond below the key 140 level. The idea today is that we are at a ‘do or die’ moment in terms of finding out whether QE tapering is about to begin or not.

I disagree that we are at the end for two reasons. Firstly, there is SIMPLY no choice in terms of keeping it going, both the currency markets and equity markets would tumble, possibly in an uncontrollable way. Second, even if this was the new policy, the Fed knows better than to reveal its hand in an obvious way. On this basis I would expect a fudge at least until the autumn, with perhaps the only real question mark being whether the money markets themselves may prove to be leading the Fed in terms of raising rates, rather than the other way around?

Therefore, you may have gathered that as far as the leading indices are concerned I expect more of the same rather than any great changes. Indeed, it is the FTSE 100 which is perhaps the more problematic of the leading equity markets in the sense that has been boxed in between April support towards 6200 and the recent post Non-Farm Payrolls data peak a 6421. The easiest thing here is probably to wait for a break of this range.

However, given the way that June support down to 6205 was a narrow bear trap rebound, and the 10 day moving average has been recovered (around the 6352 level), I would have to give the benefit of the doubt to the upside, especially given the way that the key 200 day moving average at 6152 is still rising. In the near-term, there has also been a rebound off the post April RSI support line at the 40 level which backs up the idea of this market trading no worse than sideways. If pushed, I would suggest that an end of day close above 6421 will be seen by the end of this week, and lead to a partial or even full retracement of the 6800 plus resistance of May over the next 1 to 2 months.

Part of the confidence in terms of making a positive call on the FTSE 100 comes from the way that both the Dow Jones and the S&P are currently looking so comfortable within their post-November uptrends. In the case of the Dow, it can be seen on the daily chart that there has been a double rebound off the floor of the price channel top currently level with the 50 day moving average at 15,017, the implication being that at least while this double support is held that we could see a 2012 resistance line projection target size to 15,800 over the next 4 to 6 weeks.

The S&P has a very similar charting configuration to the Dow Jones, even matching its present RSI at 56 – in the most non volatile long entry point zone between 50 and 60 for the oscillator. The implication now is that while there is no end of day close back below the November price channel floor/50 day moving average at 1617, that we should be treated to an end of July target as high as 1700 – particularly while the 20 day moving average currently 1640 acts as intraday support.

While you wait for my new AIM book, if you want to read my last missive, click below to receive it for free.