That was an unexpectedly doveish speech from Yellen yesterday, even by Fed standards. Shrugging off the fairly impressive economic numbers recently Yellen damped down expectations of any interest rates rises in the near future, which wasn’t that unexpected, but then talked about the Fed being ready to use unconventional tools to stimulate the economy if necessary, which managed to leave a lot of pundits under the impression that the Fed is considering that possibility in the near future.

It could be that Yellen knows something about the jobs numbers on Friday that the rest of us haven’t seen yet but, unless that is the case then, even by the standards of the organization that attributed the dotcom speculative bubble to a rational revaluation in the face of huge gains in productivity from IT, and then decided after that bubble burst that encouraging a real estate boom would be a great way to escape the resulting recession, introducing QE4 here would be a wildly reckless, even lunatic, policy move.

However talk is cheap of course, and while starting QE4 in the near future might be a lunatic policy move, just raising the possibility here commits the Fed to nothing, while raised expectations can move the markets without any concrete action. We’ll see what numbers come out in the next few days and I’ll be watching the numbers on Friday with particular interest to see whether they disappoint hard.

SPX has made a new rally high at the open this morning and a daily RSI5_NYMO sell signal is now brewing. If we see a decent reversal back down soon then we could now therefore get a very strong short term sell signal to set up a decent retracement.

What are the resistance levels overhead? Well I have trendline resistance in the 1973-5 area today and the IHS target is of course at 2082. SPX is close to testing the first and could test the second. I wouldn’t like to see any move significantly over 2082, as that could signal a possible blowoff top to the rally from 1810. SPX daily chart:

Looking at the futures charts this morning all of ES, NQ and TF are looking overbought here but none are showing any negative RSI divergence on the 60min chart. That is suggesting higher though it doesn’t require it. ES Jun 60min chart:

Today and tomorrow are cycle trend days, and that means that there are 70% odds of a directional day dominated by either buyers or sellers, though that need not be a full trend day in the usual sense. As I’ve mentioned before, it is very hard calling the direction on these. I’m obviously looking for a possible strong rejection down today but we’ll have to see how that goes.