MLR - PMP 1/29/14

Published : January 29 2014 at 9:28 ET

The major market averages rebounded on lower volume with the NASDAQ Composite off 4.5% and the S&P 500 was 4.2% from peak to trough. Pre-open futures are down sharply after having given up their overnight gains and reversing more than 10% from their overnight peaks at the time of this writing. Futures are town because the Turkish central bank raised rates beyond expectations which strengthened its currency.

The Federal Reserve has emphasized that low interest rates will continue even when unemployment reaches 6.5%, especially if inflation remains low. This pledge is designed to sooth markets as tapering continues. But for rates to remain low, the Fed will have to use another tool in its bag of tricks. This should be bullish for stocks though, at some point, a day of reckoning could occur as a price may have to be paid for the massive amounts of money that have been printed since 2009. That said, with Janet Yellen on deck as the next Federal Reserve Chairperson in March, low rates will be the target as Yellen is known to be pro-quantitative easing. Whether the Fed can continue to keep rates low will be its challenge.

Although some leading stocks rebounded yesterday, even quite sharply as in the case of YY, Inc. (YY), for example, caution is still warranted as today's Fed policy announcement will likely have the potential to move the markets one way or the other. We will continue to closely monitor price/volume action in major averages and leading stocks to determine whether the market direction model can sit tight on a its buy signal.

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