An ugly last half hour selloff took the stock indices to session lows, breaking below the session-long trading range that held since the market started Wednesday higher. A 12 point SP500 drop, 27 on NASDAQ, and 98 points on DJ30 didn't torpedo the indices, but is certainly left them with a heavy look.
After all, following Tuesday the indices were in a 4 session pullback and bounced nicely off of the next support level tested on the Tuesday lows. They were set up to move and did so early, following futures higher. Then a long sideways WOF move (waiting on Fed, a play on an oilfield phrase) that initially jumped upside then returned to the range. At least until the last half hour of selling. There was plenty of time to sell off after the FOMC decision and Yellen's press conference, but nothing happened until the end. Some program sells hit and the indices flipped from modestly higher by 0.25% to 0.35% to negative.
SP500 -3.82, -0.18%
NASDAQ -8.62, -0.18%
DJ30 -34.65, -0.20%
SP400 0.17%
RUTX 0.13%
SOX -0.09%
VOLUME: NYSE -0.5%, NASDAQ -6%. Volume did rally post-FOMC but it was no big rollover to the downside. Just didn't have the bids to hold the upside move.
A/D: NYSE 1.5:1, NASDAQ 1.2:1.
Okay, so stocks gave up the upside Post-FOMC though it was well after Yellen's press conference that the funds punched the sell buttons. Of late, however, the day after the FOMC statement has been the opposite in terms of market direction. Two meetings back it was an ugly selloff after the release that was met with a strong surge the next session. Last meeting was not as dramatic, but the same action.
It would appear the Fed is backing off from the 'hike unless data says otherwise' stance, and it would appear that it was due to the May jobs report and the polls on Brexit. Once again the Fed is back to the default position of doing nothing, fearing events overseas and one economic data point even if it still believes the jobs market is just fine.
That stance would appear to favor market upside, but just after a meeting there is the 'what does the Fed see that we don't that it turned bearish again?' when the Fed backs off its tougher hiking talk. That unsettled the market and when it could not push higher post-statement it then sold. We will see if that sentiment holds Friday or if everyone wakes up and realizes it is just Yellen being herself, fearing shadows within the shadows.
The leadership groups were overall quite decent again. Biotech/Drugs showed good moves or held up well, e.g. XLRN, GALE, INCY, KITE. Software ditto, e.g. ROVI, CYBR, though RHT did not play along. Oil held on and bounced modestly but was not showing it was bulletproof: SPN, SWN, WLL, ORIG. Metals were not bad, e.g. AKS, FCX.
Financials rallied then faded to show doji; they do not look that good and now the Fed has confirmed it is not going to help on interest rates. Chips were not bad in some cases (QRVO, MU, AMD), but many closed off the high and look sluggish: SLAB, MXL, NXPI. Important groups in the rally and they are struggling.
You have a split forming in the market again, not a major one but leadership is moving a bit in opposite directions. Thursday will tell more of that tale.
The outcome of this pullback likely tells even a bigger tale in terms of the next market move. If this one fails, if the leaders cannot lead the rest of the market higher from this 1+ week of a pullback then the market bounce is likely done. Lower MACD on the recent higher highs accompanied by no real volume increase. SP500, for example, rallied to a higher high last week on two weeks of below average. The same can be said for RUTX, SP400 as they are part of NYSE volume.
Those patterns are still solid enough, but they are also at a point where they show they can hold and bounce or fail. Said that before, but that is the way it is. There are leaders holding the line and we are still holding several of them, but they have to hold and bounce. As noted, on Wednesday some did, but a lot just held, unable to hold an early move off a support test. Again, the outcome here shows the next move in the market.
We have slipped quietly into some downside positions on DIA, AAPL, FB and will look at more if they set up. That market has pulled back, there are some great upside plays still there (e.g. CYBR, ROVI entered today), but they have to prove they can move.
Have a great evening!
Jon Johnson, Chief Market Strategist
InvestmentHouse.com
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