What Will the Fed Say?

Retail sales for November rose more than expected.
The 4th quarter is already shaping up to be the strongest for
consumer spending since before the recession. And the National Retail
Federation has upped its forecast for holiday sales.

Retailers are rallying on the news. But I will
confess some disappointment at the group for its recent performance.
Target (NYSE:
has done well, but my top play, Kohl’s (NYSE:
KSS) has performed poorly since it
rallied during the last two weeks of November.

However, Kohl’s hit it’s 50-day moving average
yesterday so there could be a trade-able bounce.

*****I’ve never discussed Best Buy
BBY) but
it’s getting killed today after a poor earnings report and a comment that
it doesn’t have much visibility as to how customers will be spending over
the next couple of weeks.

That’s a pretty shocking statement for a retailer,
at Christmas.

Inventories have also risen far faster than sales at
Best Buy. That suggests the company hasn’t gotten pricing right. Last
minute shopping tip: You might find some deals at Best Buy between now
and Christmas.

*****It’s clear consumers are feeling better about
the economy. We (I readily include myself in that group) tend to speak
with our wallets. And it’s not just consumers that are getting more
optimistic. Corporate CEOs are forecasting increased plans for hiring in

*****The FOMC concludes another meeting today. There
is virtually no chance that the Fed will pass on any new information in
its statement. It is possible, however, that the Fed will take a more
confident stance on the economy. It would seem difficult to ignore the
improved spending numbers.

Bernanke has said that he and the other Fed
presidents will be reviewing the QE2 treasury buying plan on an on-going
basis. A confident tone in its statement could suggest that the Fed will
slow, or reduce the size of its purchases.

*****We discussed the US Dollar Index yesterday. And
it’s interesting to note the relative strength of the dollar, and the
continued rise in Treasury yields. As we know, the Fed wanted to keep
rates low. But the plan is backfiring, in a way, as investors are
interpreting the Fed’s actions as a top for bond prices and have been
selling consistently.

That’s bad for bonds. PIMCO’s $250 billion Total
Return Bond Fund is down 3% over the last month. And when you consider
that according to Bloomberg, bond funds attracted an average of $27
billion per month during the first 10 months of this year, it seems
likely that investors have a lot re-allocating to do.

We should expect strong moves for companies that pay
solid dividends as these stocks attract bond money.

*****Finally, I’m going to leave you with some
comments from my Wyatt Investment
Jason Cimpl. Jason is the trading
strategist for TradeMaster Daily Stock
and he follows the dollar closely.

His subscribers are also sitting on some excellent
short term gains (23%, 21%, 20%, 13%, and 12% in the last few weeks) and
so the dollar’s action, inasmuch as it is supportive of stock prices, is
always in Jason’s thoughts, and in his pre-market comments to his

From today’s letter to TradeMaster Daily Stock

Considering the collapse of the dollar on Monday,
the modest gains from the market were unsatisfactory. Additionally,
and more importantly, commodities trended lower from the open. Instead of
trending lower, all commodities should have extended gains amid the
dollars demise.

The dollar is down again today, which should
provide a floor of support for the indices. But we have to be aware that
the recent selling would be a whole lot worse if the dollar

The dollar may fall apart, and my worries will
go away. But I need to consider how a 2% rally in the dollar would impact
the market and our positions. Until the dollar index takes out $76
support there is an even chance it rallies past $81 and takes the market
and most commodities down in the process.

At this point, it is quite early to draw any
conclusions about the odd activity. Should this behavior persist over the
next week, I may begin to rethink our bullish short-term

As indicated throughout the past month, and as
recent as yesterday, I believe the recent rally could turn cold any day –
but we are to stay bullish until it does turn. We have increased stop
losses on most positions just like we did in April/May to avoid a massive

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