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Market Rally Takes a Breather After “Knee Jerk” Reaction to the Fed

Breakout

On December 23rd of last year Friend of Breakout, and managing director of LandColt Trading,Todd Schoenberger told Matt Nesto he was expecting a 35% drop in stocks during 2012. Things haven't quite panned out for him thus far; the S&P500 has ramped more than 5% higher year-to-date. Is Schoenberger ready to concede defeat?

No, n0t by a long shot.

"It's way too early," he all but shouts in the attached video. "There's 253 trading days this year, we've only traded 16 of them."

He's right, of course, but they've been 16 pretty good days, not the least of which being the burst of enthusiasm in the wake of the FOMC's announcement that they intend to keep rates at roughly zero until late 2014 --18 months longer than originally planned.

"Knee-Jerk reaction!" the head of LandColt Trading says. Again he's right of course, but shouting at rallies is a time-honored trading death trap. Schoenberger's smart enough to avoid going bankrupt complaining about what should happen. There are factors that could make him bullish, not least of which being QE3.

He says a third round of Quantitative Easing is in the cards during the second quarter, both because the economy will need it and the White House will want it. "The Fed is apolitical" you say? Adorable thought, but no one on the Street takes it particularly seriously.

Schoenberger says the market is rallying in the face of unimpressive earnings, a traditional sign of an improving economy or a complacent tape. While conceding recent economic data (with exception to new home sales) has been strong-ish, Schoenberger says he has to "suspect going forward earnings aren't going to be that great."

He's probably right in terms of the big picture, but that doesn't help those living in the here-and-now. Is the rally party over? Is it safe to short stocks yet or would you stay on the sidelines? Dare I say it, do you say "damn the headwinds" and add on any dip?

Let us know in the space below or Tweet me @Jeffmacke or Todd @TMSchoenberger