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Life’s but a walking shadow, a poor player, that struts and frets his hour upon the stage, and then is heard no more; it is a tale told by an idiot, full of sound and fury, signifying nothing.

William Shakespeare

Federal Reserve

Well, after all the hype, the taper finally was announced. It remains to be seen if the reduction in purchases translates into a negative for the financial markets.

As the Fed must continue credit creation to maintain the short end of rates, the only area that will be affected are banks still trying to unwind losses in MBS’s. That they can now only unload a marginally smaller amount each month may impact the housing sector, but time will tell.

COT Index

The COT index number continues the trend of weakness at [-4.7%]. This continues a COT seasonal weakness through the Christmas period.

Technical

The technical picture confirms the COT number, although the bear trend has flattened after the huge rallies after the Federal Reserve minutes were released. Resistance still sits circa the $182 level. Thus into the holiday shortened week I would expect some selling.

Support sits circa $177. Both the areas are found on the 15 day chart which is the current time period most strongly correlated with the price action, therefore I will use it in looking at the technical levels.

Therefore, in anticipation of the January effect, and that seasonally the COT numbers tend to reflect buying, I would be looking at long trades in the support area.

Confirmation

Due to currently placing market neutral trades, there is no real requirement to wait on confirmation. For directional trades, I would wait to see if the support area holds rather than anticipating that it will hold. The reason being that on the daily charts, the pullback is very shallow and could go deeper, the current reaction being a bounce from the lows.

Trade

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