FED\'s dilema

This is certainly toughest tape for quite some time.  That the market cannot hold its gain is very frustrating.   Even though we are very close to the lows of the year, a lot of people still hold hope somehow the worst will be over in short amount of time.  If one wants to see the capitulation of the market, one is definitely disappointed.

 

Tomorrow, we will hear the decision from FED about the interest rate, the consensus on the street is that the FED will leave the interest rate alone, so, everyone is going to pay the attention to the statement.  But the market is stuck in a quandary, it needs FED’s help to stimulate the economy, rescue bad loan etc, it also needs to see the oil/inflation to go down.  The FED just cannot please both sides. 

 

Meanwhile, the bottom of the market is yet to be confirmed.  If you take a look of a two year chart, it seems like the market has more room to fail.

 

It is interesting to look at the exchange rate of euro, FXE formed a descending triangle; looks like it will break out one way or the other soon.  The same can be said about GLD.   

 

Here are the two scenarios:

 

1). FED looks tough on inflation.  It will exacerbate the problem of financial and housing, but it could help consumer and economy in general.

 

2). FED thinks the slowdown of the economy will rein in the demand thus inflation will resolve itself.  This is more likely.  That way, look the oil spike even higher.

 

Anyways, it is not a good idea to bet one way or the other, and the emotional trading afterwards is hard to muster, so, maybe I will stay sideline unless there is obvious surprise.