After a 2 Day FED Rally…..Now What??
It was just too easy and way too predictable. Like a “set up” out of a Swing Trading for Beginners handbook. 5 days of selling at the beginning of a dismal earnings season had left the S&P 500 right at its 200 day MA with the always cheerful FOMC 2 day policy meeting in the on deck circle and the end of the calendar month in the hole.
From here…..it’s gets quite a bit more difficult.
Wednesday recap: Equity markets extended their reflex rally for a 2nd day as Energy, materials, and Industrials continue to lead the rally. Housing stocks were particularly strong despite conflicting data on starts, and natural resource stocks rallied for a second day, albeit off “rock bottom” levels.
The FOMC issued their policy statement at 2:00 PM, basically a slightly “tweaked” copy/paste from their last statement, launching FED experts and wannabes into an endless discussion over the meaning behind a couple words added or omitted.
The real market moving story of the day was oil. The weekly inventory report showed a surprising drawdown of 4 million barrels as US production surprisingly fell from near capacity levels.
This was enough to convince oil shares, particularly those in the fracking and drilling space, that it was OK to rally 2 days in a row, sending many secondary names to 5%+ gains on the day. Keep in mind that many of these high single digit gains came in stocks that had been beaten relentlessly for weeks and months and I’m sure a good bit of the buying was from shorts locking in handsome profits.
After a two day rally most broad based market averages are slightly above the midpoint of the July 8 lows and July 20 highs.
NASDAQ +0.4% at 5111 continues to have higher lows and highs at inflection points, while the DJIA +0.7%at 17,750 has done the opposite.
The S&P 500 +0.7% at 2108.57 is trending sideways with very stubborn resistance at 2130 while rallying off support at the 200 day MA twice this month.
The Russell 2000 +0.4% at 1229.60 has the most troubling look. After being a clear outperformer in the 1st half, The Russell is down -2% this month and 5% lower than its June 23 all time high. It’s had the weakest rally of all major averages the last 2 days and is barely 1% above its 200 day MA. Watch the Russell 2000 closely.
I don’t like what I see.
Janet Yellen has stated repeatedly that policy decisions will be “data dependent” and the next few days is a datapalooza of economic data that’s right in the wheelhouse of what the FED puts front burner. We start with the first look at Q2 GDP at 8:30 this morning. Consensus is at +2.4% after a flat Q1.
Friday morning we’ll get the Employment Cost Index report for Q2, with the focus on wage gains, which have been elusive. While this was always the favored inflation barometer of former FED Chairman Greenspan, Chair Yellen favors the monthly PCE inflation data from the Commerce Dept, which we’ll get early next week before the jobs report on Friday.
Data dependent?? Here We Go!!
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