You Can Hate the Rally But Still Must Respect the Fed

I don’t have to tell you what happened yesterday, at least I hope I don’t need to. The market got what it wanted and it seems things are setup for another crack-induced move with Bernanke as the drug dealer.

I stand conflicted as a technical analyst. I say that because I see glimpses of the market being overextended here but it just feels like traders want to keep buying. Hedge funds have seen lackluster performance over the past two and half a years and have made it known they have no problem taking on beta to prevent redemption’s and saving face with their partners.

While I won’t say we are going to see a mirror image of 2010 and 2011 when Bernanke lit the torch to begin the Olympic games of ‘risk on’ trading, it’s tough to make a strong argument against it. I’m sure many money managers sit at their terminals this morning closing their eyes as they hit ‘buy’, acting on hope and a little instinct rather than a tested investment plan.

Going forward I would not be surprised to see some kind of pullback which traders will likely take advantage of to deploy more cash. My biggest worry is when things appear this easy something seems to always happen to pull the rug out from as many people as possible. If you start hearing your cab driver, caddy, or waitress mention quantitative easing and the stock market, get worried.

You can hate any future rally we may see in equities but you should still respect it. Bernanke just passed out more free samples while Mr. Market enjoys the high.

Disclaimer: Do not construe anything written in this post or this blog in its entirety as a recommendation, research, or an offer to buy or sell any securities. Everything in this post is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned in the blog. Please see my Disclosure page for full disclaimer. Connect with Andrew on Google+.

About Andrew Thrasher

Andrew Thrasher is a Portfolio Manager for an asset management firm in Central Indiana. He specializes and writes about technical analysis as well as macro economic developments.