The Dow is approaching a major tramline

Today should be eventful. The monthly US Federal Reserve meeting minutes will be released and the market will be reading it very carefully (and nervously).

The reason is very simple the market is fixated on what the Fed does or signals (or does not). The current QE (quantitative easing) programme of buying $85bn worth of bonds per month is under intense scrutiny right now.

The problem is this: the US economy continues to under-perform month after month. It can therefore be argued that the $85bn has been insufficient in terms of producing the level of GDP and jobs growth the Fed is looking for.

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up

The Fed isn't the only one with a problem

On the other hand and what economist is short of hands? the massive flow of bank reserve deposits is creating huge asset bubbles' in some markets, particularly the stock markets. The Fed must be eyeing the steep rise in stock markets with alarm.

They have a problem!And so do we, as traders.

Solid resistance at the upper tramline

The S&P consists of 500 companies over a broad range of industries and is considered more risky than the Dow.

Then there is the Nasdaq, which contains many younger and smaller high-tech companies, and is the riskiest of the three.

The S&P and Nasdaq have moved into all-time highs recently, while the Dow has not. There is a clear divergence and that is not a sign of a healthy bull market.

I have kept this chart of the daily Dow for some time:

This is an excellent tramline pair because they both have several good touch points. And today, the market is only around 80 pips off the upper tramline.

Here is a close-up of the last leg up:

The rally off the early October low has been persistent. It is even more one-sidedly bullish than in the similar period off the 24 June low.

But because my tramlines have contained all trading since March within the trading channel a period of seven months chances are the upper tramline will hold.