Wednesday Worries – Fed Speak Not Helping?

As you can see from Dave Fry's S&P chart, even yesterday's PATHETIC volume was too much for the bulls to maintain the illusion of strength.  What little volume there was had 50% more decliners than advancers on the NYSE, led lower by energy stocks (as we expected) as oil collapses below that $95 line (as we expected). 

It can also be seen in the bond market as TLT, for example, tumbles back to weakening support at $103.50.  we used to like cgoing long on this line as recently as August but now we're done as the macro environment is getting less note-friendly as inflation rears it's ugly head everywhere but US Government data.  As Dave notes:

Long-term Treasury Bonds (TLT) for example have been teetering on serious support. This is the result of the Fed potentially losing control over the market as investors fret over tapering. Without the Fed's buying there is little in the way of a safety net to offer support. Sure, they won't begin tapering in big chunks, but markets are forward looking and many will just get out of the way. 

Small Caps (IWM) have been the most sensitive to Fed monetary policies, responding positively to dynamic QE but are more fearful of tapering than perhaps other sectors. This is demonstrated by the chart below courtesy of ZeroHedge showing the severe drop in shares outstanding recently. Obviously, there's a dangerous and serious divergence between price and shares outstanding.

Wow, that's crazy-looking, right?  No wonder we added SQQQ shorts yesterday, as well as VXX longs (the Dec $19/21 bull call spread at $1, offset by the sale of the $20 puts for 0.95 for net .05 on the $2 spread) in our Member Chat Room yesterday morning.  That was our first trade idea for the morning yesterday – not bad considering I was in a Las Vegas hotel room scrambling to get the wifi working!  

This morning, we re-upped (or downed) our /NKD Futures shorts at 14,600 

IN PROGRESS