Happy Monday everyone. I'm not sure if you were ready to start the new week or not (I know I wasn't), but here it is all the same. And, it kicked off with plenty of news to stir the market's pot. First and foremost, I'm sure you saw headlines that the Federal Reserve may finally be looking for a way to put the brakes on its quantitative easing via its bond-buying program. Since September of last year, the Fed has been buying more than $80 billion worth of Treasury and mortgage-backed securities in an effort to keep interest rates low (and indirectly, inject lots of cash into the economic system). It was never intended to be a long-term stimulus though, as like any medicine, too much of it can cause other and equal problems. Still, that quantitative easing - and the promise of it continuing indefinitely - is a huge part of the reason stocks have been defying gravity since November. If that stimulus goes away, many fear the rally will turn around and carry stocks right back to those troubling lows seen in the latter half of 2012. I've just got two take-aways about the matter. 1. First, it's unlikely the Fed is going to end its stimulus programs altogether until it's crystal clear the economy doesn't need it. And, nobody thinks we're there yet, especially with inflation quickly becoming more like deflation. The Fed may scale back and then eventually end the bond buyback in the foreseeable future. Heck, it probably will. That's not necessarily the only possibility in the Fed's bag of tricks, however, and nobody at the Fed has actually offered any convincing hints that the United States economy can feasibly afford to come off of life support. It was just a presumptuous Wall Street Journal article that suggested it. What the WSJ didn't do justice to was the fact that the FOMC (per the minutes from the last meeting) also opened its mind to doing more in the way of stimulus if employment remained weak and disinflation became a likely reality. 2. Second, I've long clamored for the Fed to accept the reality that the market responds to everything Ben Bernanke and other Fed governors say. Right or wrong, just dropping random word bombs - bullish or bearish - on the market can cause problems not just for the market, but for the economy as well. If the Federal Reserve really is looking to scale back or end its stimulus plans, this is the first time I can recall where there's been any interest in saying so in a gentle, non-disruptive way. 'Bout time. Anyway, while there's little doubt that the Fed's propped the market up quite a bit for months, of all the things you or I could worry about right now, a premature exit from the Fed's stimulus effort is the least of them. Stocks Are Breathing Hard, & Slowing Down Yeah, technically speaking, stock made progress today. I think it would be tough for anyone to qualify Monday as a 'good' day for stocks though. The S&P 500 is still unable to move above the ceiling at 1635, and each day that it doesn't do so, the more discouraged traders will get. That's not even the part that concerns me here. The big red flag for me is the fact that volume continues to weaken as the market continues to move forward... or at least tries to move forward. I know it's an unpopular theory, but I still contend we're at a point where stocks aren't going to be able to hold onto their recent big gains. You can see all of that on the nearby chart. But, that's not the only reason I suspect the S&P 500 and all the other indices have pushed their luck too far. We've talked about the VIX as well as the market's put/call ratio a few times lately; both are too low right now, or confidence is too high. Well, both indicators moved even a little lower today, suggesting that bullishness, optimism, or whatever you want to call it has become even more unhealthy and dangerous. Here's a bigger-screen chart of both compared to the S&P 500. The cues aren't always clean, but of you look at the chart closely enough, the history of the put/call reading and the VIX should make it clear why you should be concerned now. I've said this before but it bears repeating now... too much confidence or complacency doesn't inherently mean we're due for a big dip. It just means the odds of a dip of some size is high. What makes the market vulnerable to a large pullback right now is the fact that stocks are so overbought at the same time the put/call ratio and the VIX are at alarmingly low levels. We'll have to wait and see where the ultimate landing spot is. They Said What? Well, the site's regular contributors certainly hit the ground running this week, serving up some great commentary for you. There was one post today that I thought was particularly worth mentioning, not necessarily because I agreed with his point, but because it's just an entertaining - and occasionally downright funny - look at what Star Scientific (STSI) has been going through of late. Dr. John Faessel writes "Due to the recent shemozzle re Virginia's Governor, Star Scientific's CEO, the political fuss, the law suits, the ambulance chasers piling on and the slide of Star shares I'm going to bring some good old common sense and reality to the much muddled and contrived situation." And, Dr. Faessell proceeds to do exactly that. I strongly suggest you take a look at Star Scientific and Dirty Politics, whether you give a hoot about the company or not. Bryan Murphy also chimes in with an opinionated piece today about a company I know you're all familiar with.... Molycorp (MCP). Shares surged more than 30% on Friday following what was (relatively) good news on the earnings front. But, as Murphy explains, Molycorp's future may not be nearly as bright as the market's giving it credit for. By the way, I don't know if we've mentioned this lately or not, but you can respond to any commentaries or articles posted at the site. If you agree, tell 'em why. If you disagree, call 'em out. Just keep it clean and rated PG. Coming Soon Another rough day for gold. We're going to stick with our broad thesis here and say it's not hit its ultimate bottom. We're also going to point out that the near-term target of $1476 we talked about back on April 24th ended up serving as the cap on the rally, and the beginning of the pullback. (You're welcome.) In retrospect, neither the support at $1333 nor the resistance at $1476 should be a surprise. Both are key Fibonacci lines, as we described that day. More important, both levels are apt to come into play again. We've got a nagging feeling that gold will at least test $1333 again. Anyway, we wanted to give you a heads up that it's getting close to time we can take our quarterly look at gold's actual supply and consumption trend. It could be tomorrow; we're sure it will be sometime this week. It just depends on when the World Gold Council makes the data available. It matters to you because these are the true gold 'fundamentals' so many pundits talk about but few ever actually define or detail. We'll be interested to see just how much Central Banks and ETFs didn't buy this time around. Stay tuned for that if you really want to know about gold's supply and demand. [The last time we looked at the data was back on February 21st, if you want to know what to expect.] In the meantime, here's a special offer for you loyal SmallCap Network readers.