As we said last week, the fix was in.
Maybe the Fed wanted to stay out of politics and keep its mouth shut until after November.
But in the end, the pressure to act was simply too great.
If you somehow haven’t already read what the Fed is going to do, here it is:
- The Fed will keep on “Twisting” – that’s selling Treasury bonds that are almost due and buying fresh ones with more time to run.
- The Fed launched QE 3, wherein it will buy up $40 billion worth of crappy mortgage bonds off Wall Street – each and every month, with no expressed time limit.
- The Fed will continue to offer American banks short-term loans at 0% interest until at least 2015.
“Disastrous?” Yeah, But It’s Also Profitable
Last week we told you to buy Ford (F – NYSE) and the Gold SPDR (GLD – NYSE) ahead of the Fed.
The former gained 3.12% almost immediately after the announcement, and the latter some 2.67%.
The charts for both (below) look positioned to keep rocking.
Ford has to clear resistance at $10.83 and $11.31, but past those hurdles it stands a fair chance of hitting $12.89.
GLD has already penetrated resistance at the 38.2% marker at $169.71, and now there is no technical barrier before $185.77.
Does this mean I approve of the Fed’s moves? No, it does not.
Nothing the Fed has done has created any lasting genuine value. Rather, it has lowered the value of the dollar used to measure these assets. Simply put, each is worth more dollars but each of those dollars is now smaller.
As Peter Schiff recently put it, “This is a disastrous monetary policy; it’s kamikaze monetary policy.”
’Til The Levee Breaks
But, is all that water under the bridge now – or perhaps a broken levee?
Wall Street has pressed, the Fed has caved, and we must continue to act accordingly.
Today, I have two selections to suit this situation. The first is pretty straightforward…
Lennar Corp. (LEN – NYSE) is a well-known builder that should benefit from the Fed’s new effort to suck up every mortgage bond in existence.
Frankly, I don’t know if they will survive in the long-run, when inflation begins to bite on potential homebuyers’ wallets. Certainly the last pass around demonstrated how easily these builders can get squeezed out.
But for now, LEN’s chart (below) demonstrates a clear 3x Buy Signal Stack. So, use this week’s pullback to buy some shares and look to pad your bank account by some 25%. But don’t take your eye off the ball for a moment because you’re going to want to sell these shares at the slightest sign of distress.
Fast Food and Fast Gains
Next up, I have drawn up the chart for fast-food giant McDonald’s (MCD – NYSE).
This mega-meat slinger suffered a bit last spring, but has since put in a strong turnaround over the past few weeks. MCD’s argument is straightforward enough: the wags and talking heads all figure that a rising economy will allow the folks at the margin to stow their brown bags and thermos of hot soup, and grab lunch out instead.
Problem is, I don’t foresee the Fed’s money actually trickling down that far. Be that as it may, the herd is biting so we must play the fish that’s actually on our line.
MCD’s technical chart (below) kicked out a 3x Buy Signal Stack in late August and early September, with price breaking free of the old falling trend, MACD yielding a confirming Buyers Cross, and A/D moving heavily into accumulation.
Now, price is facing strong resistance at the 200-day moving average at $93.00.
Once clear, MCD shares should move on to $100.15 in short order.
What Man Makes, Man Will Destroy
And now, let’s address hedges like the Dow SPDR (DIA – NYSE) puts I recommended last week. These came up quite a bit at the recent Insiders Strategy Group meeting I attended this past weekend in Las Vegas.
Yes, these puts got destroyed when the market rallied. Nevertheless, I will not apologize for recommending them. In fact, I’ll tell you that you’re nuts not to keep buying them.
After all, this market has been created entirely by central bank money. Eventually, the inflation they create will destroy this rally. I’m not guessing about this. It’s historical and economic fact. It will eventually happen — just as sure as sunset follows sunrise.
But, you might not have to wait that long. All it takes is for one Fed governor to get the flu, or one presidential candidate to say the wrong thing, or one terrorist to blow up a bomb in the right place, and this whole rally eats its own tail. Again, we have seen all of the above many times over.
So, the advice for this week is to go long along with the herd — but hedge, hedge, hedge!
As always, the charts tell all.
Source: Bottarelli Research