Somewhat status quo Wednesday, but a status quo that likely won't last much longer. As has been usual of late, DJ30 put in a new all-time high. Much rejoicing. RUTX was actually the market leader (+0.55%) as the House and Senate claim to have reached agreement on a tax bill. The rest of the market, mushy at best.
SP500 -1.26, -0.05%
NASDAQ 13.48, 0.20%
DJ30 80.63, 0.33%
SP400 -0.01%
RUTX 0.55%
SOX -0.01%
NASDAQ 100 0.17%
VOLUME: NYSE 2.5%, NASDAQ 2%. Volume held at just above average levels for NYSE, rose to average on NASDAQ. Some churn on SP500, but then again, DJ30 and RUTX rose on some buying. NASDAQ shows a bit of churn, that higher volume running in place that indicates some overall selling of stocks even as buyers enter as some use the buyers to unload.
ADVANCE/DECLINE: NYSE 1.3:1 NYSE, 1.6:1 NASDAQ. Obviously some small caps at work on RUTX and even on NASDAQ as NASDAQ was overall higher than NASDAQ 100.
Now it was FOMC day, and as expected the Fed raised rates 25BP to a 1.25 - 1.50% target range. Nothing else changed other than the Fed noted inflation was declining -- and it was ironic that the dollar sold while bonds and gold rallied after a rate hike. Very strange actions in the financial markets.
In any event, on an FOMC day the market often fades post-announcement, and after a rise all session into the decision and rising higher on the decision, the last hour saw the indices fade from the intraday twin peaks. Once again, the close saw DJ30 at a new high, everything else kind of milling around outside of RUTX. As noted, kind of status quo.
Now, why do I say this status quo won't last much longer? Because NASDAQ and NASDAQ 100 look a bit tired after approaching the prior high from late November on this 6-session rebound from the early December rotation selling. They are going to make a more definitive next move in the near future, either upside to continue the move or the move fails and they head lower.
Perhaps when a recognition comes that the tax bill will pass then the next move starts upside. Of course, if it does not come to pass, the next move is likely downside after the recovery. The latter does not appear to be the case, but then again, who would have thought that conservative Alabama would elect a very liberal democrat? When you get bad choices, bad outcomes can ensue, and that is what some on the republican side feel about the tax bill. Thus, it is not a sure thing. If that changes and appearances indicate passage is a sure thing, then the market likely reacts ahead of the actual news.
Outside of that, there does not appear to be much to stimulate the market more than it already is. The holiday train is definitely here and moving on toward Christmas and New Years, holiday sales look strong, tax reform appears in the bag, the FOMC raised rates as expected and next year's hiking schedule is as expected. Not much to push stocks other than seasonal trends.
Seasonal trends are not a bad thing for the upside, but with NASDAQ below the prior highs and looking a bit weary on this recovery bounce, a slight seasonal trend does not suggest a lot of strong upside movement. NASDAQ and NASDAQ 100 are at crossroads on the bounce and they need a catalyst.
As for the other indices, the midcaps look solid enough with the 10 day EMA test, RUTX looks good enough with its 20 day EMA test, DJ30 continues onto another planet, though after 5 upside sessions it usually takes a break. SP500 reached a new high then faded, still trending nicely higher though a bit piqued near term. SOX, well, it still looks haggard, scrounging around below the 50 day MA.
Of course some of the best movers were on DJ30. HON jumped higher again and we picked up a position on it. We also picked up XNET and it came back to flat to close. Still some great leaders, but many stocks found the footing harder to hold either after good early moves Wednesday or in trying to hang onto good moves from Tuesday (e.g. the financials). That is a sign of a market that has rallied or rebounded, and is looking for something to keep things going.
Thus far nothing has impeded the upside, but nothing has come along to really excite the upside to a stronger move. Thus there may just be a creep higher in hopes a Santa rally shows up into Christmas. Sounds kind of ho-ho-hope, and that is why we say the status quo may change before much longer. If there is a tax reform vote that passes both legislative bodies, then the market likely puts in a quick rally. That may be the rally to use to take some profits and close out some problematic positions.
Have a great evening!
Jon Johnson, Chief Market Strategist
InvestmentHouse.com
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