Wednesday was finally a day with market moving news in it: the FOMC announcement. This information would be revealed to the market in the afternoon and since there was nothing happening before that, the market was as dead as a *cough* normal day.
At 2:15pm ET the announcement hit the tape and we read the following...
• FED REPEATS LOW RATE LIKELY FOR CONSIDERABLE TIME AFTER QE ENDS
• FED TAPERS BOND BUYING TO $35 BLN MONTHLY PACE FROM $45 BLN
In essence, there was no surprise from the Yellen Fed. The FOMC kept its promise to continue its reduction of QE; however, until it ends, the Fed is still EXPANDING the monetary base. Moreover, the Fed promised that its ZERO interest rate policy (ZIRP) is not only here to stay - but will probably be extended forever.
Why would the Yellen Fed say that it will extend ZIRP "for an extended period of time" (read: as long as it wants) if everything is fine? That is to say; the so-called recovery is chugging along like a drunk at an open bar. Uhh, coz it aint.
Fed officials slashed their growth forecast for 2014 from 2.9% to as low as 2.1%. What was a prior "forecast;" as bad as (read: as high as) 4%. What a joke!
But don't worry, the latest clueless economist-guesser said the following "Economic activity is rebounding in the current quarter and will continue to expand at a moderate pace...The economy is continuing to make progress towards our objectives" of full employment and 2 percent inflation.
Just give her another 10 YEARS or so and maybe her and the last naive clown that ran the FOMC will have both been correct.
The markets rebounded from the dovish outlook on the economy by the Fed yesterday. With the FOMC throttling another 10B, they also gave a positive outlook on the economy. The markets reacted positively and started racing for the highs. The fuel was added to the fire later when Janet Yelled spoke on the positive outlook. The SPX closed at a record high, and is now poised to give a real shot at making a run for the 2000 level. While the upside is the play here, we could see a small squeeze to the downside from profit taking today. I suspect it would be short lived if it does happen, and the clear momentum is to the upside.
Earnings reports often offer the class an opportunity to take advantage of discrepancies in implied volatility between months. What happens when this set up is not very compelling? We are not out of options (ha! options. Get it?). If the environment is right and we are being paid properly for the risk we are taking on, a directional signal can present itself. Let's look at Adobe Systems (ADBE). Going into earnings, the IV was actually quite anemic with 30 day IV ~31%. Surely nothing to get excited about. and the spread between the 30-day and 60-day was nothing to note either.
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