Market Alert - The Close

Stocks were mostly lower heading into the FOMC meeting with NASDAQ leading the way thanks to AAPL's earnings. The big decision point for the market remains: is the economy good enough to go it alone without the Fed largesse? If yes, we don't need no stinking Fed (from 'Blazing Saddles'). If no, any move back toward rate hikes is trouble for stock markets.

The day started with some hope from central banks or at least governments meddling in economics. After the Japanese finance minister said it was up to the BOJ to provide stimulus, Abe announced this morning a 28T yen stimulus package to be fleshed out next week. The dollar rallied of course.

Well, the consensus is the Fed 'toughened' its position some. Of course you have to use finely tuned instrumentation to detect any tougher stance, but it is there. As one commentator put it, the Fed is more un-dovish than anything hawkish.

The FOMC said nothing about rate hikes per se, keeping rates at current levels, but did note that it expects the economy to grow such that gradual rate hikes will be warranted. Basically the Fed was trying to get back on the 'if things stay the way they are or get better we will think about hiking' page, adding a few changes to tighten up its image as free and easy.

First. The Fed noted the "near term risks to the outlook have diminished." This replaced the 'risks balanced' language since December.

Second. An economic upgrade to growing at a 'moderate rate' from activity described as 'picked up.'

Third. The Fed noted improvement in the labor market, stating there was 'some increase' in labor utilization in recent months.

Fourth. Household spending is going strongly though business investment remains soft.

Sure sounds like a 'tougher' Fed. Of course, analysis of this Fed falls in the same analysis regarding quantifying economic data: we are so used to poor data, that mediocre data is heralded as 'great.' Thus ANY movement by the Fed toward hiking is considered 'tough.' Sad and pathetic, but true.

Be that as it may, the Fed did tighten up its language a bit. It had to. If, Durable Goods report and Treasury Brexit comments notwithstanding, it had ignored the improvement in economic reports, as bogus as they may be, the Fed's zero credibility might have moved the direction of German bonds, i.e. negative.

So, the Fed is 'fired up' enough about the economy to firm its language. All must be well.

Bonds didn't think so. The 10 year bond yield fell to 1.51% from 1.56%. Bond traders think the possibility of a near term rate hike is lower post-FOMC than before.

As for stocks, they didn't act as if there were no worries, but after fading from a flattish open to midday lows, they recovered post-FOMC, fading a bit in the last hour. Some closed positive (NASDAQ thanks to AAPL, SOX thanks to chip leadership, RUTX thanks to its pattern) while most cut the losses.

SP500 -2.60, -0.12%
NASDAQ 29.76, 0.58%
DJ30 -1.58, -0.01%
SP400 -0.40%
RUTX 0.17%
SOX 0.00%

VOLUME: NYSE +21%, NASDAQ +5%. NYSE finally over average on a session; of course it was on a downside day. NASDAQ again above average as AAPL helped drive it higher.

You don't want to read too much into this action post-FOMC decision. How many times have you seen stocks trade one way the afternoon after the Fed only to go the opposite way the next session? Enough times to realize it happens.

As for the technical picture, still positive. DJ30, SP500 continue a nice 10 day EMA test. RUTX and SP400 as well, though RUTX tried to make a break from its lateral consolidation. NASDAQ, thanks to AAPL, made the break higher with a gap. SOX closed flat after an upside gap following its Wednesday breakout move to a new post-2000 high. Okay, it got a bit winded.

Thus technically the indices remain in position to move higher. Leadership is okay but some recent leadership groups sold back, e.g. retail (department stores), oil, rails. Industrial equipment enjoyed another solid upside session, and biotechs and metals rallied as well. This as oil sold below $42/bbl on a 1.67M bbl build versus the -2M bbl expected.

We didn't buy much, opting to wait to see the after effect. We did pick up some BABY positions and took some gain on BLUE as it surged and also on AGEN and FB ahead of earnings, leaving some on the table to capture post-earnings rallies if any. Looks as if FB, despite moving up into earnings the past 4+ weeks versus trending lower ahead of earnings on its last beats and jumps upside, is up a solid 8 clicks after hours. Some money in the bank and more on the way. That works.

Have a great evening!

Jon Johnson, Chief Market Strategist
InvestmentHouse.com
______________________________________
Alert Key
http://www.investmenthouse.com/alertkey.htm


Customer Support: http://investmenthouse.com/contact_us.php