Week In Review: Fed Blinks; Stocks Fall
Bears Are Getting Stronger
Stocks sold off hard after the Fed blinked and held rates at zero last week. For months, we have outlined our thoughts as to why didn’t think the Fed would raise rates Most recently, last week we penned a piece citing 10 reasons why the Fed will not raise rates). Going forward, we don’t think the Fed will raise rates until the “data” forces their hand. At this point, all that matters is how the market reacts to the news and the reaction continues to go from bad to worse. Last week, was a classic case of buy the rumor and sell the news. Stocks rallied ahead of the meeting (buy the rumor) and then sold off after the press conference (sell the news). Factoring all this “noise” out of the equation, the major indices continue to act poorly and are getting weaker by the day. We received quite a few “Thank you” emails last week for exercising caution and not getting “sucked in” to the little rally. Right now, we are still in the sideways trading range with resistance near the declining 50 DMA line (see chart) and support at Aug’s lows (1867 for the S&P 500). To be clear, we are operating with the notion that we are in a new down trend until the S&P 500 trades above 2,040.
Monday-Wednesday’s Action: Stocks Rally Into Fed Meeting
Stocks opened lower on Monday after more weakness was announced from China. China Securities Regulatory Commission’s said it was punishing two investors for manipulating certain stocks. The Shanghai Composite fell -2.7% and the Wall Street Journal reported that ~1400 stocks hit the 10% daily decline limit set by the Chinese government in recent weeks. Stocks rallied nicely on Tuesday after the latest round of economic data missed estimates. Retail Sales for August came in at +0.2%, missing estimates for +0.3%. The big miss came from the Empire state manufacturing index. The index plunged to negative -14.7 missing estimates for a small 0.5% gain. The weaker-than-expected “data” all but guaranteed the Fed would not raise rates this week. Stocks were quiet on Wednesday as the Fed began their 2-day meeting. Stocks in China staged another late day rally to close +4.9% higher. The late-day rallies are largely believed to be backed by the government. A research firm reported that nearly 1,300 Chinese hedge funds have been forced to liquidate (a.k.a shut down) due to the summer stock market plunge.
Thursday-Friday’s Action: Stocks Fall After Fed Meeting
Stocks were quiet for most of the day on Thursday as the world awaited for the Fed. The FOMC held rates at zero which initially sent stocks and a slew of commodities higher and the US dollar lower. But the rally was short lived for stocks – because sellers showed up by the close and stocks plunging after the Nasdaq composite failed at stubborn resistance near its declining 50 DMA line. The big negative reversal set the stage for Friday’s large decline. Stocks fell hard on Friday after European stock markets tanked on a surging Euro and the German DAX (their stock market) came very close to bear market territory.
Market Outlook: A Major Top?
Every bull market in history has a definitive beginning and an end. It is important to note that with each day that passes, we are getting closer to the end and further away from the beginning. This bull market is aging by any normal definition and celebrated its 6th anniversary in March 2015. The last two major bull markets ended shortly after their 5th anniversary; 1994-2000 & 2002-Oct 2007. As always, keep your losses small and never argue with the tape. If you want exact entry and exit points in leading stocks, or access more of Adam’s commentary/thoughts on the market. Join FindLeadingStocks.com.
