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MLR - PMP 1/30/14

The Federal Reserve cut bond buying to $65 billion a month as expected. It said the labor market showed "further improvement" and that "growth in economic activity" had picked up. The Fed also signaled as expected that it's likely to continue to steadily reduce its purchases in the coming months. As for maintaining historically low interest rates, the committee said, as it did in December, that “it likely will be appropriate to maintain the current target range for the federal funds rate well past the time that the unemployment rate declines below 6.5%, especially if projected inflation continues to run below the Committee’s 2% longer-run goal.” Thus the Fed has no intention of raising rates until sometime in 2015 at the earliest. QE remains on full blast across major central banks though somewhat less now at $65 billion per month from the Federal Reserve. But markets are forward looking and Wednesday's statements from the Fed indicate even less QE in the future, thus markets have been correcting with the major averages off 4-5% from their highs which is very close to the worst drop on the S&P 500 of 5.7% and on the NASDAQ Composite of 5.5% since January 2, 2013. If markets don't find a floor within the next percent or so drop from Wednesday's closing prices, this marks a new peak-to-trough drop since January 2, 2013 which, from a technical perspective, is a negative.

Conflicting signals make for potential chop-and-slop riptide markets. In the bearish camp, bullish sentiment is very high and bearish sentiment is at its lowest level since 1987. Excessive bullishness can presage market tops. In the bullish camp, the put/call volume ratio hit 0.93 Wednesday. High put/call readings indicate excessive fear and have been seen at market bottoms in the past, but generally such readings have exceeded 1.2 or more.

Fourth-quarter U.S. gross domestic product was up 3.2% vs 3.0% expectations, The largely positive fourth-quarter reading follows the 4.1% increase in the third quarter, marking the best back-to-back growth since the start of 2012. Futures rose further after the report.

3-D bioprinting company Organovo (ONVO) had a buyable gap up but it closed near its low for the day and below its 50-day moving average, so it might be best to avoid such stocks for now. We have reported on this company a number of times before (see archives).

Facebook (FB) is having a buyable gap up to new highs after a strong earnings report where it handily beat consensus estimates. Earnings and sales are soaring and institutional sponsorship has grown every quarter since the company came public 8 quarters ago.

Keep in mind the market is tenuous here, so you might decide to postpone any buying at this time.

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