Market Waiting on Yellen’s Vision
Today will be Fed Chairwomen Yellen’s first official opportunity to lay out her vision of the economy and her policy. Unless she decides to play it safe and say little out of the ordinary (the most likely scenario since the official policy right now is to leave as many options on the table as possible) the markets will be looking for hints of one two extremes. One extreme scenario is she states the tapering will be less than what the market has already priced in. Such a scenario will move stock prices higher. The other extreme is where she begins hinting at a recovery (or inflation). The market is not prepared for this and a sell-off of significance will likely occur. Right now though the market expects to be rewarded.
The market is very overbought coming into today and it’s rare that over 20% of the S&P 500 stocks have ConnorsRSI readings above 80, and 2-period RSI readings above 90. Normally a day like this would look like yesterday – it’s either going to be a pause day or have a normal pullback. But with Yellen’s first Congressional meeting, and the expectation of loose monetary policy to be the policy for years to come, overbought and oversold are secondary to the words she speaks today.