There certainly was a lot of pre-market hype with futures up solidly across the board. The President did not trigger anyone during the second longest State of the Union ever (except perhaps those wanting it to be shorter). Certainly the democrats were not triggered; it was hard to tell if they were really there or if wax figurines were brought in ahead of time. In any event, the first potential issue was not, and investors breathed some sighs of relief.
The second issue, bonds saw bonds rally with yields down a bit. Improvement, but just marginally.
The third issue, the FOMC and Yellen's last meeting/rate decision, revealed what most viewed as a more hawkish FOMC. It noted employment, investment, and spending increases are 'solid.' Inflation expectations are changing according to the Fed and the FOMC expects inflation to stabilize 'around 2%,' a true change from December and prior where the Fed said inflation would be less than 2% near term.
That is what made this Fed 'hawkish.' Okay, but with everything stronger in the economy, and clearly so, the Fed still DID NOT raise rates. Unanimous agreement for no hike. That is considered hawkish. And war is peace, spying is privacy, the emperor HAS clothes.
With that kind of hawkish I believe stocks can handle this issue.
That leaves the technical condition. Even with BA earnings setting DJ30 for a 230ish point opening gain and calls for a big upside session after two 'massive drops' (according to CNBC this morning), the market couldn't hold it. Oh sure DJ30, SP500, NASDAQ closed higher, but they were well off the intraday highs that simply did not do that much to recapture the losses. Fox Business was closer to the market when it stated it was unimpressed with the day's action in a 'if this is a recovery the rally is in trouble' summation.
For the day I agree, and that is why we were watching intently whether there were buys, but we did not move in because the action was nowhere near serious rebound levels. Not surprised at all that is the case. The technical condition heading in is not great in terms of more upside right now, and this rather short and shallow pullback, despite the 'massive' label, is not really that much of a pullback.
SP500 1.38, 0.05%
NASDAQ 9.00, 0.12%
DJ30 72.50, 0.208%
SP400 -0.18%
RUTX -0.49%
SOX 0.82%
NASDAQ 100 0.28%
VOLUME: NYSE +22%, NASDAQ +12%. Volume surged higher above average on NYSE and NASDAQ. With the large cap indices up perhaps that means accumulation. The intraday action, however, is not that convincing: gaps higher that faded all session, leaving the large caps up but off the open. That looks more like churning, i.e. high volume turnover in which gaps upside were sold into.
ADVANCE/DECLINE: NYSE 1.2:1, NASDAQ 1.6:1. The breadth sums it up: large cap rebound attempt that was not that great given the fade off the highs.
Leaders in tech were quite good on the session, AMZN up, GOOG working on a very good lateral consolidation ahead of earnings, MSFT up, INTC in a nice test. Financials are still testing, manufacturing/machinery as well, transports also -- it was not a rebound day but some were consolidating, others were not.
One group that looked good and started to show breakouts -- the large cap biotech -- started reversing breakouts: AMGN, BIIB, with GILD on the verge. That is one of the indications of a weakening market, when good stocks breakout and the reverse the move. If other groups join in, especially really important groups such as big tech or FAANG or transports or retail, that is a big problem for the rally.
Afterhours MSFT is up a bit, FB reversed upside after initially selling off, T is up almost 4%, EBAY up as well. Hey, perhaps they can spark a new move.
Perhaps, but I don't think the market is ready yet. The patterns are working on it, but SP500 and DJ30 don't look ready yet. Frankly, this has the look and feel of needing more than the 'usual' kind of test in this long, long rally.
That remains to be seen. How the big names, the leaders of the pack on the rally (FAANG, huge cap tech), fare on earnings will tell a lot of the tale. Outside of a pop on the news, do they hold the breaks higher? Chips are problematic with some rallying (AMD), some not (LRCX). Others are hanging on, trying to ride it out (financial, manufacturing/machinery, transports, oil).
In sum, they tried to recover, some did, others are popping on earnings, but there is not a definitive recovery and still a lot of day to day volatility as the buyers and sellers are going toe to toe right now. Again, maybe the earnings break the market higher again, but the same issues heading into this current volatility remain: the run to this point, the sentiment indications at extremes, technical issues, and now some leadership questions. With the leadership fighting to hang on, it is not a clear time to load up. And thus, we didn't even buy a single position today.
We did take some gain on NFLX, MSFT and BABA ahead of results but also left some to work, FB as well. We will see if they can produce an earnings pop and then we can decide to take more gain if they pop and stop, or if they continue on upside and we can let them continue rallying a la NFLX.
Have a great evening!
Jon Johnson, Chief Market Strategist
InvestmentHouse.com
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