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Until yesterday, traders worried that the Fed might increase rates sooner than expected. Until yesterday, traders were concerned that the recent good economic news might wind up being bad news for the stock market. And until yesterday, traders fretted that the Fed might make a mistake.

However, all of the nervousness about what the Fed could, would, or should do next were put to rest after the release of the minutes from the latest FOMC meeting. In short, the minutes showed that Janet Yellen's merry band of central bank governors are now concerned that weakness overseas coupled with a rising U.S. dollar could hurt the economy here at home and keep inflation below the 2 percent target.

The bottom line is the FOMC minutes were music to the ears of traders. And while the trading machines liked the statement initially, it was the human interpretation, which takes a few minutes to actually be developed, that caused stocks to rocket higher Wednesday afternoon.

Don't Fight the Fed

As far as the stock market is concerned, the key is the minutes showed that the FOMC members actually cut their outlook for both economic growth AND inflation. The instant interpretation was simple: rates are NOT going to be rising any time soon and the Ms. Yellen has "cover" to keep from raising rates for as long as she'd like.

Bam! Within seconds, stocks were off to the races. High speed trend-following algos jumped on the long side. Shorts scrambled for cover. And the dip-buyers once again did their thing.

The result was an impressive daily move that recovered all of Monday and Tuesday's losses. Suddenly the game wasn't about the weak German economic data, China's punk numbers, or the IMF's latest prognostication about global growth. Nope. Suddenly the game was back to being all about the Fed and the "liquidity trade."

At issue here is the question of when the rate-hike campaign will begin. The general consensus is for the Fed to begin a very long series of small rate increases in June 2015. However, there has been a fair amount of angst lately due to the idea that the strong jobs numbers might cause the Fed to adjust this target.

But, the minutes from the September FOMC meeting showed that the committee members are worried about the goings on in Europe as well as the recent spike in the greenback.

"Some participants expressed concern that the persistent shortfall of economic growth and inflation in the euro area could lead to a further appreciation of the dollar and have adverse effects on the U.S. external sector," the minutes stated.

It was interesting to note that the committee didn't limit their concerns to Europe and added China, Japan, and Ukraine/Russia to its list of worries. The exact verbiage was, "Several participants added that slower economic growth in China or Japan or unanticipated events in the Middle East or Ukraine might pose a similar risk."

It's Not About the Calendar

Also of interest to the markets was the effort by the FOMC to make clear the fact that future actions will be tied to the data and not the calendar. Apparently members want the "considerable time" language to be clarified so that their intentions cannot be misunderstood.

Recall that Ms. Yellen caused quite a stir at her first press conference as Fed Chair when she suggested that "considerable time" meant something on the order of six months.

"The concern was raised that the reference to 'considerable time' in the current forward guidance could be misunderstood as a commitment rather than as data dependent," the minutes stated.

The minutes went on to add, "It was emphasized that the current forward guidance for the federal funds rate was data dependent and did not indicate that the first increase in the target range for the federal funds rate would occur mechanically after some fixed calendar interval."

So there you have it. The Fed has taken the calendar off the table and made it clear that it's all about the data. And on that front, the committee also told the markets that things are not as peachy keen as the U.S. data might suggest and that they want to keep their options open.

The Takeaway on the Charts

It is interesting to note that things were not looking good in the early going on Wednesday. No, the S&P 500 initially dove lower and wound up breaking through its 150-day moving average. The venerable index also wound up testing last week's low, which was important to technical traders.

But just when it looked like all was lost and the "meaningful correction" that so many analysts (as well as the divergence in the smallcaps) had been calling for was on, the Fed saved the day. Again.

The reaction to the minutes in the market was strong and swift. The S&P 500 rallied a full 45 points (or 2.34 percent) from the morning low and finished with a gain of 1.75 percent on the day.

S&P 500 - Daily

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From a chart perspective, yesterday's action was impressive. The 150-day was tested hard in the early going and the bulls wound up with an A+ on the day. The anticipated "retest" of the recent lows also occurred yesterday and once again, the test was successful. And finally, one can argue that the blast higher in response to the FOMC minutes produced a "key reversal" day.

But (you knew that was coming, right?), the S&P remains in a downtrend from a short-term perspective and there is still a great deal of resistance overhead. As such, the bulls will be looking for a follow-through day in the next three days in order to confirm that yesterday's move was more than just algos running amok.

So, the takeaway is that the market may have once again put in a "V" bottom and that #BTFD may be alive and well. But the bulls still have some work to do before anyone should get overly excited.

Turning To This Morning

Although stocks surged on Wall Street yesterday in response to the FOMC minutes and Alcoa kicked off earnings season with a nice beat, global markets are not exactly following suit this morning. In short, concerns about economic weakness hit Japan overnight and another weak report out of Germany (Exports fell 5.8% in August) is causing analysts to use the "R" word in Europe again. Markets across the pond started the day higher but have since reversed hard. As expected, U.S. futures have followed Europe's lead and now point to a weaker open on Wall Street.

Pre-Game Indicators

Here are the Pre-Market indicators we review each morning before the opening bell...

Major Foreign Markets:
    Japan: -0.75%
    Hong Kong: +1.17%
    Shanghai: +0.26%
    London: -0.56%
    Germany: +0.02%
    France: -0.67%
    Italy: -0.98%
    Spain: -0.87%

Crude Oil Futures: -$0.42 to $86.89

Gold: +$22.20 at $1228.20

Dollar: higher against the yen, lower vs. euro and pound.

10-Year Bond Yield: Currently trading at 2.284%

Stock Indices in U.S. (relative to fair value):
    S&P 500: -4.14
    Dow Jones Industrial Average: -58
    NASDAQ Composite: -6.44

Thought For The Day:

"My will shall shape my future. Whether I fail or succeed shall be no man’s doing but my own" -Elaine Maxwell

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Positions in securities mentioned: None

Wishing you green screens and all the best for a great day,

David D. Moenning
President, Chief Investment Officer
Heritage Capital Research
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