This is a market that just loves to disappoint!!
A Fed day is always interesting.
After NASDAQ 5092.08; S&P 500 (by a whisker!) 2117.69; Russell 2000 1275.35 and NYSE Composite 11,203 all posting fresh all time closing highs within the last 2 weeks, the lack of follow through and has not gone unnoticed.
For the most part yesterday, stock market averages merely gave up their gains from Tuesday finishing with losses of slightly less than -0.5%.
While these averages are still trending higher on daily and weekly time frames, as is the DJIA 18,035, there was a lot about the market action Wednesday that we simply did not like:
First and foremost, it was a FED day.
The unwritten rule the last couple years is that the market rallies on FED days. To have stocks under pressure all day leading up to 2:00 PM and then fail to rally after the FED all but completely ruled out a June rate hike, is just not in the playbook we’ve followed the last 2 years.
By all measures the FED issued an expertly crafted statement, stamped with the Goldilocks Seal of Approval, highlighting that labor markets continue to improve, and that much of the soft patch in 1Q was due to “transitory” factors.
Transitory is the FEDs new favorite PhD word to explain non recurring obstacles that are thrown at the economy like Winter Weather in January and February and labor/management issues between Unions and Robber baron Corporate Executives.
The DJ Transports -1.25% at 8701.47 is back in the danger zone. After a recovery rally last week off its’ 200 day MA the Transports hit stiff resistance at their 50 day MA and have declined 3 of the last 4 days. Wednesday DJTA closed fractionally below the 200 day MA of 8711.
Again, the 8500 – 8550 is a big support area going back to last October. A Fed Day doesn’t change these significant levels.
The Russell 2000 posted a new closing high on April 17 and has trended between 1250 and 1275 the last 2 weeks. it looks vulnerable in the near term after 1%+ declines 2 of the last 3 days and closing right on its 50 day MA of 1246 yesterday.
NASDAQ has been the outperformer for at least the last 3 quarters. Last week, after great anticipation, NASDAQ finally eclipsed it’s 15 year old high water mark, hitting new closing highs 3 days in a row. Some of the euphoria from the Internet bubble 15 years ago came out of the woodwork as at least 1 market strategist said we could see NASDAQ 10,000 in 2016.
On the same day, NFLX rallied 60 points to eclipse the $500 level and AMZN and GOOG also sported double digit gains. It was time for a reality check. NASDAQ has declined 3 days in a row as the Biotech stocks have cooled off from their most recent parabolic spike and technology investors have shifted their focus from high flying Social Media names to “Old School” blue chip techs like IBM, INTC, CSCO, QCOM and MSFT.
No doubt NASDAQ is still in a strong uptrend on daily and weekly time frames, but Wednesday’ close of 5023 is below the breakout above the previous closing high of 5048. Make sure your trading plan has clear criteria for the breakout.
The German DAX is 7% to 8% off its highs from 3 weeks ago and is about to log its first monthly decline of 2015. Certainly after a 25% nonstop rally, a pullback was in order.
Clearly the catalyst for the explosive move to the upside was the introduction of the ECB QE program. This pullback has coincided with the US Dollar trading at a 2 month low vs. the Euro, and most recently the 10 year Bund yield rising from a near capitulation level of +0.05% to +0.28% in less than 2 weeks.
Hard to tell how deep the correction will go, and while the 10 week rally from mid January to the end of March was unsustainable, the harsh reality is that anyone who has bought the DAX since early March is now under water.
Every Bull Market caution signs along the way that should help keep investors and traders in check. When there’s one everywhere you look, you either pull off the road for a bit, or accept the heightened risk of a Storm Chaser.
The Early Line: Today has the potential for information overload between a very full slate of 1Q earnings reports, and a healthy dose of macro data. At 8:30 AM we’ll get Personal Income and Spending as well as the Employment Cost Index report. Both of these should be heavy ammo for FED to judge if we’re getting closer to our 2% inflation target.
At 9:45 well get the Chicago ISM report, always a closely watched barometer for the National ISM tomorrow.
The April NFP and Jobs report Will Not!! be released tomorrow, despite it being the 1st Friday of the Month. We’ll get that report next Friday May 8.
Tim Anderson Managing Director TJM Investments, LLC
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