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Wednesday, June 13, 2018

Market Alert - The Close

The market rose modestly into the FOMC with tech and growth leading. The FOMC raised rates 25BP as expected, but turned up the dial to four rate hikes in 2018 instead of three. It dropped the language Bernanke inserted about rates staying at a level below normal levels for an extended period, suggesting that now they will be allowed to rise.

The Fed also upgraded its view on the economy, looking at 2.8% GDP for 2018 but back to 2.4% for 2019, stating that the economy was growing at a 'solid rate' versus a moderate rate in the prior statement.

All a bit more hawkish and stocks sold off on the news. Then Powell had his press conference where he appeared a bit more moderate, noting the Fed was not overly worried about inflation running past 2%, and he noted the economy was in great shape.

A nice bounce right back to announcement prices ensued. Then, however, as the last hour started, the sellers entered again and drove SP500 to a session low at the close. Indeed, all but RUTX closed at session lows and all closed negative.

SP500 -11.22, -0.40%
NASDAQ -8.09, -0.11% (53 points off the intraday high)
DJ30 -119.53, -0.47%
SP400 -0.63%
RUTX -0.34%
SOX -0.13%

VOLUME: Volume looks as if it climbed to near 2.1B on NASDAQ from 1.98B while NYSE rose as well. The numbers are not final yet so we will have the official percentages later. The intraday index action shows rallies pushed back as volume rose just after trade rose on a break higher. Not good technical action though post-FOMC is always a higher volume rollercoaster ride. The question is how stocks react Thursday.

Further, the bond curve was not all candy and roses for the Fed. The 2 year climbed but the 10 year held more or less steady, flattening out the curve a bit more. It would appear, at least at first blush, that the bond market is not that convinced the FOMC has it right with respect to its assessment of the economic strength and how much slowing the economy actually needs. Ah, but the Fed said that it would not hike so much the yield curve inverts. Oh comforting.

The yield curve is ALWAYS smarter than the Fed; Greenspan made every possible excuse to his 'conundrum' of a flat curve despite the Fed's rate hikes, and they all proved invalid. The curve forecast what the curve forecasts, and ultimately that was the end of the advance in the economy. Not there yet, but the market is likely at least a bit apprehensive the current Fed will make the same mistakes most other if not all prior Feds have made, i.e. hiking too far at the wrong time.

The action leaves the indices looking potentially toppish near term after 4.5 session moves higher on NASDAQ and RUTX, and 8-day moves on SP500, DJ30, SP400.

Some stocks held nice moves, e.g. TTWO, BILI, ROKU, NFLX, AKAM, NTNX, ADBE, but many faded from earlier gains, e.g. NVDA, AMZN, FB, GOOG, JD, BITA. Most are not bad at all and indeed remain in very good patterns, but you do not like seeing them jump upside then bail out.

That said, as noted, post-FOMC afternoons, particularly with a newer chairman and a shift to a hiking bias can lead to more volatile periods. As has been the case with most recent FOMC rate decisions, the next session digested the the news and the trend continues. We will see if that works to the upside's favor again.

Perhaps some M&A heating up will help. Afterhours and somewhat as expected, Comcast put in a bid for the Fox assets DIS already seeks. While Fox is higher as you would expect, SPY futures are not bouncing.

We picked up some positions such as TTWO and BILI that held moves, but also NVDA that did not hold a move and AMZN that held less than half its session move. We will see if these leaders can hold and reload. We took some strong option gain on ARWR, HD, HTHT, and MRO June options -- ahead of the FOMC results. That trade worked while Tuesday we opted to take the rest of the NFLX options ahead of the T/TWX court ruling; we made good money, but with NFLX up 15+ clicks Wednesday, we would have made a LOT more money. Hmm. The fact that some leaders held their moves is good, and we will see if they are the true leaders, and after the weaker post-FOMC action Wednesday afternoon is digested, if they can pull those back upside.

Have a great evening!
Jon Johnson, Chief Market Strategist
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