Market Alert - The Close

Could Venezuela been right after all? Or, after so many desperate claims of an OPEC deal to bolster prices and thus its economic cesspool, it, like the blind hog, got one right.

Regardless of the Venezuelan 'call,' a purported 'understanding' on production cuts was reached with the final details to be worked out in November. That, of course, is fraught with trouble as there is a lot of time until November. I never understand OPEC and its 'agreements' that are never negotiated at the time but put off until later. Hmmm, sounds a lot like the Fed and its 'not at this point in time' non-decisions.

In any event, the market swallowed the line. The indices were flat after the pretty solid Tuesday rebound, at least by the large caps. Then the OPEC deal news hit at 2:00ET and the result was immediate upside, and that upside carried stocks into the close.

SP500 11.44, 0.53%
NASDAQ 12.84, 0.24%
DJ20 0.61%
SP400 0.82%
RUTX 0.74%
SOX 0.20%

VOLUME: NYSE +6%, NASDAQ +3.5%

A/D: NYSE 3.1:1, NASDAQ 1.5:1

While large caps dominated the Tuesday upside, Wednesday the midcaps and small caps returned to prominence. That answers one of our concerns for Tuesday, i.e. the narrow advance by a few names. Oh sure, AMZN surged to yet another new high but the 3:1 NYSE breadth shows money moving back to more areas, more sectors.

Not all of them were small cap: some large cap industrial equipment makers surged, e.g. CAT. Energy of course surged on OPEC's agreement to put an agreement in writing in the future, though many of those companies are LLC (less than large cap). Commodities advanced, e.g. metals, building materials. Hence helping the upside breadth.

Rotation remains in the market, and it remains somewhat vicious. Most leadership groups continue working well, either holding their moves, holding their patterns, setting up well, etc. Some areas are getting the hammer treatment. Eateries: SONC, BWLD, PNRA, EAT, CHUY. Apparel: LULU, NKE, though some could find bottom.

The end result saw the indices advance with the other side of the market catching up with the large cap Tuesday move. Two upside days answering the Friday/Monday fade of the post-FOMC move. So far that is a positive for the market. The indices are attempting to build back to higher highs but it is not smooth sailing across the board. No new highs yet, but as I have said many times, anything is possible with a central bank ready, willing and able to step outside its mandate and do anything and everything, including policies that are destroying investment in the US, to make sure the history books don't show a stock market crash occurred on its watch.

Pathetic, but stocks will rise as long as they can rise in the easy money environment. At some point the Fed and its maintaining the status quo with its policy will no longer feed the upside. There is some point even further stimulus will no longer feed the upside. The question is where is that point, and thus you have to play the upside but also respect the possibility that the last high made might be the last high in the rally.

We picked up some ARAY and CRK, dumped HAL downside as it was showing too much strength. Thus far the upside trend remains in place with the 2-day rebound after the post-FOMC test. Even so, the indices are still below the highs hit before the fade, and that is the next test for the move. Thus far, however, the upside that keeps coming back has come back.

Have a great evening!

Jon Johnson, Chief Market Strategist
InvestmentHouse.com
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