Stocks Fall After Fed Meeting


SPX- Stocks Drift Lower

SPX- Stocks Drift Lower

Tuesday, December 13, 2011
Stock Market Commentary:
Risk assets fell on Tuesday after Fed’s last meeting of the year. From our point of view, the market confirmed its latest rally attempt on Wednesday, November 30, 2011 when all the major averages soared over +4% on monstrous volume in response to the global central banks coordinated efforts to flood the world with liquidity. However, since then the major averages have gone virtually no-where which suggests caution is the better part of trading valor at this point. There have been a few isolated instances in history where a new follow-through day (FTD) emerges on Day 3 which validates Wednesday’s healthy action. It is also important to note that every major rally in history began with a FTD but every FTD does not lead to a new major rally. In addition, since 2008 the percentage of failed FTD’s has surged due in part to the massive volatility we have seen in the major averages.

Retail Sales Fall In November & Fed Concerned Over Future Downside Risks From Europe

On Tuesday, U.S. stocks opened higher but turned lower after the Fed’s last meeting of 2011. As expected, the Fed held rates steady but expressed concern regarding future economic headwinds out of Europe. Earlier in the day, investors were concerned after German Chancellor Angela Merkel rejected any increases in the bailout fund for other debt-laden European nations. Elsewhere, investors were concerned that U.S. retail sales grew at their slowest pace in five months last month. This cooled earlier expectations for a robust Q4 holiday shopping season. The Commerce Department said retail sales rose a weaker-than-expected +0.2% after gaining +0.6% in October.

Global Macro Picture is Bleak:

We find it very disconcerting to see other (leading) risk assets fall to fresh 2011 lows in recent days. China’s Shanghai Composite (normally a leading risk on/off indicator) has fallen below its October low and hit a fresh low for the year. The euro, which is strongly correlated to U.S. stocks and other risk assets took out its October low on Tuesday which is not ideal. Gold, Silver, Copper and a slew of other risk assets are also getting smacked in heavy volume which leads us to believe that a cautious stance is paramount at this stage. As an easy reference point, if the benchmark S&P 500 would simply fall to its Oct low, that would be a 140 point decline to 1074! Sometimes, caution is king.
Market Outlook- Confirmed Rally
The benchmark S&P 500 (SPX) is back in negative territory for the year after failing to stay above resistance (near its respective 200 DMA line) over the past few weeks. However, the other major averages are positive for the year which bodes well for the risk on trade and suggests we might end this year in the black. For months, we have argued in this commentary that from our point of view, the current EU bailout plan- to use leverage & add more debt to a debt crisis- is foolish at best and does not address the broader issues (i.e. the other PIIGS countries are broke). Recently, others are beginning to take notice. However, our job is to trade on what we see happening, not on what we think will happen. We do this by gathering the facts, interpret how the markets react to the news and trade accordingly.  What we have seen from the October 4, 2011 low was simply an over sold bounce into a logical area of resistance (200 DMA line). Looking forward, this sideways action should continue until either support (1074) or resistance (200 DMA line) is breached. Therefore, we have to expect this sloppy wide-and-loose action to continue until the market closes above its longer term 200 DMA line. Our longstanding clients/readers know, we like to filter out the noise and focus on what matters most: market action. If you are looking for specific help navigating this market, feel free to contact us for more information. That’s what we are here for!

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Stocks Fall After Fed Meeting

Tuesday, September 21, 2010
Stock Market Commentary:

Stocks negatively reversed after the Federal Reserve decided to hold rates steady near record lows and left the door open for further economic stimulus. Tuesday marked a distribution day for the major averages as volume topped Monday’s levels on the NYSE and on the Nasdaq exchange. Decliners led advancers by about a 2-to-1 ratio on the NYSE and on the Nasdaq exchange. New 52-week highs easily outnumbered new 52-week lows on the NYSE and on the Nasdaq exchange. There were 81 high-ranked companies from the Leaders List made a new 52-week high and appeared on the BreakOuts Page, lower than the 101 issues that appeared on the prior session.

Housing Starts Top Estimates:

Before Tuesday’s open, housing starts, which are registered at the start of construction for a new home, unexpectedly grew in August. The reading topped estimates and helped signal a possible bottom to this 4-year housing meltdown. It is very interesting to note that housing stocks topped out in the summer of 2005 which was one full year before the housing market started getting into trouble. In that vein, housing stocks appear to be tracing out a a large, albeit sloppy, bottom, which could have bullish ramifications if they begin to rally from here. Several other important housing reports are slated to be released later this week.

Stocks Fall After Fed Meeting:

Around 2:15pm EST, the Federal Reserve announced the decision of their latest meeting. The Fed held rates steady near historic lows and left the option to add more economic stimulus, if needed. The Fed also said that inflation remains below levels that indicate a healthy economy and made it clear that they were ready to provide “additional accommodation” to support the ongoing recovery. Stocks traded higher after the announcement but sellers showed up in the final hour and sent stocks lower.

Market Action- Confirmed Rally:

On average, the action since this rally was confirmed on the September 1, 2010 follow-through day (FTD) has been strong. Looking forward, the window is open for disciplined investors to carefully buy high-ranked stocks. It was very encouraging to see the major averages and several leading stocks break above stubborn resistance levels and continue marching higher. All the major averages had recently rallied above their respective 200-day moving average (DMA) lines, a clear sign that the overall market is in healthier shape. Now that the summer highs have been exceeded, the next important resistance levels for the major averages are their respective April highs.

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