The Fed Stimulus Program “Canaries-in-the-Coal-Mine” (by SB)

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The Fed's new monetary stimulus program announced today
(Wednesday) is geared towards shoring up the housing/mortgage market which, they
hope, will, in turn, stimulate consumer/corporate/investor confidence and job
growth. This has been their intent since they began a variety of monetary
stimulus programs in 2008.

In this regard, it may be prudent to monitor
the relationship between the financial markets and the SPX, and the housing
markets and the SPX, in order to (generally) gauge the strength of market faith
in the viability of such an outcome as we go forward over the next year. No
doubt, these markets may produce short-term volatile reactions to various
economic data points as they are released during this period. What will be of
interest is whether any one particular release affects the general trend in such
a way as to produce a reversal.

As such, I present the following two
Daily ratio charts of the XLF:SPX (Financials
ETF) and the XHB:SPX (Homebuilders ETF). At the moment, both
the XLF and XHB Sectors are trading weaker compared to the SPX. The RSI
Indicator has been in decline since September of this year. The XHB is
relatively weaker compared to the SPX than is the XLF. In the near term, a drop
and hold below current support on XHB:SPX, together with a failure to regain and
hold above current resistance on XLF:SPX, may lead to a pull back in both of
these Sectors. Furthermore, a drop and hold below the 50 sma (which serves as a
support level on the general uptrend) may signal a trend reversal for both
Sectors, which could send price down to the 200 sma…ones to watch over the
next weeks and months.