Data Co-Dependent

Zero Hedge already scooped this topic, but whatever: from now on . . .

1) no news is good news

2) bad news is good news

3) good news is bad news

Because when the Fed chairman suddenly chooses to hide behind data, watch the data.

“So we are tied to the data. We don’t have a fixed calendar schedule.”

“There is no fixed calendar schedule, I really have to emphasize that.”

“If the data confirm our basic outlook” for growth and the labor market, “then we could begin later this year."

So now traders, investors, and the Fed are all one data co-dependent bunch. Just as No Taper was a surprise, Taper On will likely be a surprise. The Fed's own jawboning caused interest rates to spike higher, so look for a stealth Taper decision.

“The committee has concern that rapid tightening of financial conditions in recent months would have the effect of slowing growth.”

That "rapid tightening of financial conditions" was brought on by the Fed itself.

Stanley Druckenmiller on CNBC mentioned the fact that former Fed chairman Paul Volcker didn't dabble with forward guidance or "transparency." He once raised the Fed funds rate by 200 basis points (2%) on a Saturday. How's that for a surprise.

The point is that the Fed caused its own problem as it coddled the markets by telegraphing its intentions. It will not likely repeat the same mistake.

However, St. Louis Fed President James Bullard is doing his best to muddle this. This morning he told Bloomberg, "It's possible you get some data that change the complexion of outlook and make the committee be comfortable with a small taper in October." So they're already walking it back (and proving this post wrong).

Ironically, the second to last line in The Socionomics Of September Vogue 2013 is "be on guard for the unexpected." I totally missed this No Taper nonsense.

This market is going higher until it breaks, although a retracement should be expected. I continue to see 1560.33 as the real break point. But getting below 1709.67 in the next day or two would raise a red flag.