All bulls wanted for Christmas was a Bernanke put

By Brian Shepard

THE FED TAPERS $10 BILLION STARTING IN JANUARY. FED TO CUT MONTHLY MORTGAGEBOND BUYING TO $35 BLN FROM $40 BLN. EXCEPTIONALLY LOW RATES UNTIL JOBLESS FALLS WELL PAST 6.5%. BERNANKE: JANET YELLEN “FULLY SUPPORTS WHAT WE DID TODAY.”  OUTGOING FED CHAIRMAN DELIVERS … MOST ACCOMMODATIVE EVER … [DJIA] GOES UP, DOWN AND THEN SPIKES ALMOST 300 POINTS HIGHER, VIX DOWN OVER 13% AND THE 10yr BACKS OFF TO 2.874%.  **WHOA!!!

You may have previously heard about this afternoon’s pending macro news, the FOMC decision followed by – THE  LAST BERNANKE  PRESS CONFERENCE ON FED DAY. Traders and investors were yearning for some clarity from the Fed and the details as well as the commencement date of the QE stimulus tapering. Outgoing Fed Chairman Bernanke and the FOMC delivered along with Janet Yellen’s nod of approval.

It may just be a very merry Christmas, Santa Claus year end rally after all.   

**NOTE:  iceChat (12:56) If you think the economy started to really heal in 2012, then this economic cycle really isn’t as long in the tooth as people say / think; important to separate the beginning of the bull market cycle in 2009 from the economic cycle …

A snippet from the FOMC statement: ” However, asset purchases are not on a preset course, and the Committee’s decisions about their pace will remain contingent on the Committee’s outlook for the labor market and inflation as well as its assessment of the likely efficacy and costs of such purchases. ”  Also: “The Committee now anticipates, based on its assessment of these factors, 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 6-1/2 percent, especially if projected inflation continues to run below the Committee’s 2 percent longer-run goal.”

Today started with 255k ESH and 800 SPH traded on Globex, ESH trading range was 1780.00 – 1772.00. Tuesday’s regular trading hours (RTH’s), pit session trading range was 1777.30 – 1788.20 before settling at 1779.30, down 7.3  handles. Asia at 7:30amCT, 6 of 11 markets closed lower: Shanghai Comp. +0.13%, Hang Seng +0.32%, Nikkei +2.02%. In Europe 10 out of 12 markets are trading higher DAX +1.06% FTSE +0.27%. The German IFO survey, RBI rate decision nor the BOE minutes had much effect on the markets as the Fed decision/ the Bernanke Presser lay in wait. On the earnings front, widely followed, FedEx reported profit was up 14% but express shipping slips as 2nd qtr profit misses estimates. US housing starts and building permits for November checked in at 1.007 vs exp of 0.99.

Today’s pit session, the March S&P 500 futures opened 4 handles higher to 1777.00 – 1776.00 and traded an early high of 1778.50 before slowly decaying to 1772.50 by 10:52 . Kathy (08:51) 15m lvls: ES 1779 / 1775.75,  NQ 3469.5 / 3462.5, CL 97.79 / 97.62, showing no conviction in front of the Fed decision.  Kathy (09:51) ES still in 3.75 pt range … yuck. The European equity markets closed modestly higher, with the exception of Spain, while the VIX was trading near unch on the day.  However,  at 12:12 the S&P quickly dropped about 6 handles – nerves got the better of somebody? With 1768 area trading, rose: (12:38) cant imagine the Fed says anything at all surprising and everyone seems to be setting up negatively so i would guess a rally in both stocks and bonds.

At 1:00, on the Fed news the intraday low of 1762.00 traded and then going into the cash close 1804.00 traded … FED NOW EXPECTED TO WAIT UNTIL SEPTEMBER 2015 TO HIKE RATES,  BASED ON FED FUND FUTURES TRADES AT CME  =  All the talk is Bernanke is essentially reassuring mkts that the “bernanke put” is still intact – enuf said!

REMEMBER THIS?  Posted yesterday:  US Equity Option Expiration: Per Jeffries there is a VERY large short gamma position above SPX 1800. The Friday, Dec 21st 1785 straddles is 1.5% highlighting the market is not expecting a large move higher to materialize following the FOMC meeting. The most acute pressure point is above 1825. Between Dec regular and year-end expiries there’s $118 billion in net calls open between 1800 and 1850 strikes ($77bln for Dec regular expiry).  When will Fed taper? Dec 26%, January 33%, March 37% – WSJ.

iceChat (13:56)  $480 mil to buy early look.  Things were off a bit but they sure did pick up going into the close … By 2:00 the VIX was testing 14.00 area while the SPH was trading 1793 area when (14:00)MrTopStep MiM Closing Imbalance was showing a small 55%, $104M to the buy side. At (14:20) the MiM showed 60%, just $249M to buy while the index was trading 1799 area and by (14:40) when the MiM showed a very large buy side 82%, and $939M. By 2:47 it mushroomed to $1.15 Bil to buy along with all 30 of the Dow stocks to buy. On the cash close the March futures traded 1804.70 area, then traded an intraday high of 1806.00 before settling at 1804.70, up a whopping 31.7 handles on the day.

Believe what you will … Goldman Sachs [GS] is now reining in riskier activities, shrinking its balance sheet and steering clear of trades that don’t produce the double-digit-percentage returns its shareholders crave, according to sources. The reason for this is because new rules and lackluster markets have curbed profit, making it too expensive to operate as it had during the boom years – WSJ.

Algae to crude oil: Million-year natural process takes minutes in the lab  http://1.usa.gov/19ScGeN

Coming events: http://www.investing.com/economic-calendar/

Brrrr ….Posted Monday: Out in the cold … Sam_E (09:41) bears want this to be a technical perfect abc down now to 1734 were it not exp week i would say its about 110% guaranteed … if there were such a thang …   **UPDATED: However, there were 2 lucky winners in last night’s $636M Mega Millions drawing.