Larry Summers cancelled his bid for Fed Chairman and futures went nuts last night thinking this means Dove City -- endless amounts of stimulus and easy money due to Janet Yellen more than likely being the top pick.
In my opinion, this is a flagrant example of the market proving that it can't continue higher without assistance.
It also wrongly assumes that further stimulus and easy money will be Yellen's sole decision.
For one thing, Obama may confound the market by appointing someone else entirely . . . such as Christina Romer, his former chair of the Council of Economic Advisers. She'd be perfect for him, another career academic and a fellow liberal democrat. She also worked with Larry Summers to present Obama with recommendations for a $1.8 trillion stimulus package back in 2008. So this chick knows how to spend.
Furthermore, from a socionomics standpoint, women gain dominance in a bear market. Perhaps it's time for a woman to be at the helm because we're already in one.
That's the message of the S&P priced using the cost of actual goods. It's not pretty.
Finally, imagine the horror if a supposed Dove like Yellen had to raise interest rates because the market did. This could very well happen after a righteous bounce in 10s and 30s concludes. The truth is that the Fed does not control the bond market, no matter what the pundits say. It also has private shareholders who want their Federal Reserve Notes back.
Then there is the Syrian issue. It was quietly reported over the weekend that, oh, there may need to be a few "boots on the ground" in order to ensure that Syria's chemical weapons get disposed of properly. It's slowly sounding like we're going in no matter what. No one seems to be calculating this scenario.
So today should be as good as it gets for the shared mental state of the current market. The charts below show that a rising wedge may have replaced the head and shoulders pattern. 1720 could be the target, but it's doubtful that it will be a straight line move (although at this point anything's possible).
My current thinking is that this market won't be ready to go down until a day like today ends up strongly in the red. I will try to hang onto the upside delta that I bought last Thursday (SPY 169 calls) until 10am or possibly noon. But I will be looking for breadth to confirm the move and doubt it will.
Bottomline is that this news is as good as it gets for the market, yet it might be prudent to prepare for when doves cry.
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