Fed Announces "Operation Twist"

So what is "Operation Twist"?  Basically the Fed will buy 400B worth of longer dated bonds and fund the purchase by selling an equal amount of bonds with the maturity of 3 years or less to fund that purchase.  This will all be done prior to June 2012.  The feds balance sheet will not expand as it did during the release of QE1 and QE2 (quantitative easing).  Bonds in the range of 6 to 30 years will be purchased, and an equal amount of bonds 3 years and under will be sold, all in the hopes of stimulating the housing market.
How did bonds react after the announcement of this stimulus package.  Below is the 10 year bond TLT.

Unlike QE1 and QE2, this stimulus package does not look to benefit stocks and commodities.  Under QE1 & 2, the feds balance expanded by purchasing mortgage backed securities and treasuries, and the liquidity found its way into stocks, commodities and bonds worldwide.  I don't see this stimulus as being as equity friendly as the prior two stimulus packages, that did not see a rapid economical improvement anyway.  

Bottom Line:  I believe the Fed Reserve is out of ideas to stimulate the economy and chose now to focus solely on the housing market.  I am not sure what another 50 basis points lower will do to spur the housing market.  Also, unlike QE1 and QE2, this package will not have a direct effect on stocks or commodities, but should lift longer maturing bonds (lower yields) in an effort to boost the housing market.  I expect stocks to be under pressure in the near term based on the makeup of this stimulus package.  Thank you for stopping by.

Market Capitulation?

Many characteristics of a market bottom were displayed today.  Highest volume day of the year, VIX fear index breaking higher, and bonds all moving higher at the same time. First lets take a look at the S&P 500 ETF (SPY).  This index traded the highest volume of the year.  Notice the high volume today.

The VIX index, also known as the fear index, rises when puts are purchased to protect portfolios.  As seen below this index rose 35% today.  Not quite as high as last years market correction, but still high.  I look at this index as a contrarian indicator.

Bonds moved higher yet again as investors move into a safe haven regardless of the low yielding return.  Below is a chart of the bond ETF (TLT) breaking higher for the year.

Bottom Line:  Just because these are the signals I look for in potential market bottoms, does not necessarily mean we are there yet.  But as always, there will be some stocks beaten down for little reason other than the overall market moving lower.  Thanks for stopping by.