Friday’s rally extended the previous day’s short squeeze to higher heights, but without producing a net gain on the day. Considering how the futures relapsed after topping an hour into the session, the longstanding, bearish target at 2090.25 looks better than ever. I have little doubt that it will be reached. What I’m looking for, however, is for this Hidden Pivot support to give way easily, implying it will hold for no more than a couple of hours. Better yet — for bears, at least — would be a breach of the support the first time it is touched. That would suggest that the selling is about to pick up steam. Presumably, that would put bears in command for the remainder of the week.
What was especially bearish about Friday’s price action was that the stock market was unable to make headway even though Yellen was giving her most dovish speech in years. Far from talking about imminent tightening, she told eggheads, policy wonks and banking bureaucrats at a Boston luncheon that the Fed may need to run a ‘high pressure economy’ to reverse damage from the 2008-09 crisis. That sounds more like she is trying to manage expectations for a new round of QE than for a hike in the federal funds rate. Under the circumstances, I cannot overstate the bearishness of the stock market’s punk reaction on Friday.