What does the current Cross-Market landscape look like after Wednesday’s Federal Reserve meeting/announcement?

Let’s take a look to see the current structure along with the big market winners and losers.

Here’s the intraday Cross-Market Landscape:

In a classic “Risk-Off” cross-market readjustment, stocks, gold, crude oil and commodities declined greatly while defensive markets Treasuries and the US Dollar Index (“risk-off” vehicles) surged.

All markets broke respective trendlines after the Federal Reserve announcement, which set-up a short-term trading opportunity that carried through into today’s session.

The over-simplified summary (from a Cross-Market landscape) can read as the following:

Economic conditions are deteriorating/serious concerns are increasing and as a result, the Fed will purchase longer-term Treasury securities as opposed to engaging in a balance-sheet increase via QE3.

Translation:

Economic conditions deteriorating:  Bearish for stocks and commodities while Bullish for bonds

The Fed will purchase longer-term Treasury securities:  Bullish for 10-Year and 30-Year Treasury Prices

The Fed will not expand its balance sheet/not engage in QE3 (yet):  Bullish for the US Dollar Index

As we can see below from a glimpse of the TLT – 20+ Year Treasury Bond ETF – the biggest benefactor of Wednesday’s announcement appears to be the longer-term bonds:

The bond funds TLT and IEF (7-10 year Treasury Fund) both broke-out sharply in August due to a sharp downturn in the stock market along with rapidly deteriorating economic news.

Price similarly broke nominal overhead resistance at $115 per share in part from “Operation Twist” and otherwise by a somber view by the Federal Reserve on  economic conditions (“…significant downside risks to the economic outlook…”).

We’ll need to watch the respective cross-market price charts for further confirmation (continued price action) of these bigger-picture themes, but until we see otherwise, keep these simplified cross-market themes in mind.

Corey Rosenbloom, CMT
Afraid to Trade.com

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