This pullback is a bit more severe than probably most bulls would want. The entire Fed sugar high from last Wednesday has now been erased. At this rate the rally from a week ago when Larry Summers was pushed out the door for Fed chairman also might be retraced. A lot of individual names have seen a lot more damage than you'd expect in a 3 day pullback. Interesting to see.
After the euphoria of late Wednesday when it became apparent that Ben Bernanke will not be taking back any QE during 2013, and likely through the end of his term, markets were as overbought on some measures as they had been the entire year. The NYSE McClellan Oscillator was at levels seen only a handful of times the past 3 years. The S&P 500 had been up every single day of the month except for one – so in a way it was a bit of a blow off short term top based on surprising news. There was a small pullback Thursday and …
Today is the worst breadth day of the month but considering there have only been 2 down days all month that was an easy hurdle. Also recall at the close Wednesday, the S&P 500 was the most overbought it had been since the previous summer per the NYSE McClellan indicator. These past 2 days have helped work that condition off.
St Louis Fed head James Bullard is out on the wires saying there could still be tapering in 2013.
This reminds me after the May comments by Bernanke that tapering might be on the horizon, a bevy of Fed speakers came out in the following week to counterbalance that by saying it is very conditional on economic data and nothing is guaranteed. Now we have the exact opposite… Bernanke surprised everyone by doing nothing so now they send out minions to say "but we just might do in the future…any moment now!" Yada yada yada. One thing Bernanke really had been good with was utilizing the bully pulpit and he could use his gift of gab in lieu of action at times… but now it is difficult to take what he says with credibility. If they did not do it this meeting it is (a) difficult to see them doing it in a meeting without a news conference immediately after to react to the insufferable whining from the stock market community and (b) since the next meeting with a news conference is not until the holidays, do you think Ben is going to ruin Christmas like that? Sure seems to not be his style. I thought he would start to taper mostly because he wanted to set the precedent before he left office but even that doesn't seem to matter so it seems status quo until 2014.
Two more Fed speakers later today including the only hawk. But all this is noise now.
Quite an explosive rally yesterday at the 2 PM mark, in fact about 70% of yesterday's gains came in a minute or so per Bespoke Investment; the power of algos. Obviously the Fed, by surprising just about everyone with "no taper at all", lit another fire under the market but coming off a near vertical rally since late August it is still a bit surprising to see the relentless bid with no rest this month. Per at least one indicator this is the most overbought moment of 2013 – and it is not even close. The NYSE McClellan Oscillator rarely exceeds 60 and yesterday was approaching 90 at the close. This rare 80+ type of reading only happened twice in 2012 and four times in 2011.