The FOMC minutes on Tuesday could be a tipping point for this market.

After a volatile week traders managed to end it with a gain, Friday and Tuesday were the only really positive days but sentiment appears to be improving. However, you have to wonder how much longer the prospect of Fed easing can continue to push stocks higher over the daily earnings warnings.

The stage is set for a very critical week. Shorts are in denial and are powering our moves rather than the retail investor. Cash has flowed out of equity mutual funds every week since the flash crash. Bond funds are still growing by more than $4 billion a week according to ICI and that money is coming out of equities. How much longer can the patient continue bleeding before collapsing?

The FOMC minutes on Tuesday afternoon should provide more insight into what the Fed was thinking at the September meeting. Analysts parsed the post meeting statement and assured investors the Fed was about to launch into another quantitative easing program that would further devalue the dollar and force assets into equities.

If you are a mutual fund with a large portfolio it worked in your favor to propagate the rumor. However, late last week two Fed presidents both threw cold water on the idea saying it was "far from a done deal" and "little could be gained from a new QE program." Of course the market ignored them.

Those minutes will be a critical economic event on Tuesday. If they don't appear to support the prior conclusion the dollar could rally hard and that would be bad for equities.

I looked at a couple hundred charts this weekend to see if I could find something that would not tank hard on bad news. I did not find anything I felt was worth playing going into expiration week. If the FOMC minutes support the market I will profile some plays on Tuesday night. Until then we are safely on the sidelines as October progresses without a normal decline.

Please be patient as we wait for the next entry cycle. We will not enter a position just to make a trade. We want to enter new positions only when the risk is manageable and the chances of a profit are in our favor.

Jim Brown



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