Market players have come to expect a very dovish Fed but today Janet Yellen and the gang disappointed. What the market wanted was some reassurance that interest rates wouldn't rise soon. Many economists feel that 2016 is a more reasonable target but all that the FOMC offered was some vague comments about evaluating incoming data and the likelihood that a hike wouldn't occur for a couple of months. That simply was not enough to satisfy this market.
Part of the problem is that the market has exhibited quite a bit of instability since the end of December. It is quite a change in character. The conventional wisdom is that swings like this are an indication that market players are experiencing increased uncertainty, which often leads to a change in market direction.
The bears are loaded up with ammunition right now as oil, currencies, interest rates and economic news is in a state of flux. Many players think the market is now on the verge of the long-awaited correction that has been anticipated for years.
Technically, the indices still hold above recent support levels but another retest has increased odds of failing. We are not in a downtrend at this point but there is obviously some worrisome price action. Apple (AAPL) helped the bullish cause a bit and dragged up some chip stocks, but by the end of the day breadth was down to 1,500 gainers to 4,400 losers. That certainty is a sign that downside momentum is building.
Facebook (FB) numbers are out and it is trading around flat so far. We have a slew of reports on the agenda and that will help determine the mood. With the exception of AAPL, there hasn't been much to celebrate.
Be careful; it is becoming increasingly choppy and inconsistent out there.
Jan. 28, 2015 | 2:25 PM EST
The Fed Offers Nothing Solid
- But the final hour of trading will tell the tale.
The Federal Open Market Committee's interest rate announcement is out and it contains nothing very solid. The gist is that the Fed will be "patient" and will evaluate new information as it comes in before making any moves. There is no clear indication that rate hikes will be pushed out, although many economists now believe it is unlikely we will see a hike before 2016.
The reaction to the news is very mild so far as there isn't anything that is overtly hawkish or dovish. I'm concerned that the market will have a bearish bias and that the Fed announcement isn't going to do anything to shift that. We have a very slight downside drift, but it the final hour of trading will tell the tale.
Oil is being pummeled and breadth is now negative. Select chips and Apple (AAPL) are the bright spots but the underlying support for the broader market looks precarious. I've been taking some profits today and I'm moving to a slightly more defensive stance.
The Fed didn't give the buyers much of a reason to buy, and that has me concerned.
Jan. 28, 2015 | 10:23 AM EST
Apple Quiets Fed Jitters
- But look for volatility to increase as the announcement nears.
Apple (AAPL) is chugging along nicely and that is causing a great celebration. No other stock is as beloved as Apple, and it has a very strong effect on sentiment in the short term.
Outside of Apple, it is mixed action with a positive bias. Breadth is running 2,800 to 2,300 positive with good strength in chips, biotechnology and retail. The chip sector is likely benefiting from Apple sympathy. Gold and oil are lagging.
The FOMC interest rate decision is at 2 p.m. ET and we are likely to see volatility as market players position for the news. There are expectations that the Fed will push back potential interest rate hikes; if they are not clear about that, it may cause problems. On the other hand, if they do suggest that hikes are being pushed back we could see a very positive reaction. The consensus seems to be that the Fed will remove the "considerable time" language completely and will be quite vague about timing.
I'm trying to do a bit of positioning into the strength. Recent buys such as Tower Semiconductor (TSEM), Planar Systems (PLNR), Himax Technologies (HIMX), bluebird bio (BLUE) and Super Micro Computer (SMCI) are acting well and I'm inclined to take partial profits.
The Russell 2000 is the laggard today after leading yesterday, which I don't like to see. It suggests to me that market players are gearing up to sell on the Fed news. It is a mistake to underestimate how much this market tends to love the Fed no matter what it does, but I'm cautious this time as the usual vagueness may be a negative.
Jan. 28, 2015 | 7:29 AM EST
Attention Quickly Moves from Apple to Fed
- The decision will give us important clues as to overall market direction.
You have to be burning with an idea, or a problem, or a wrong that you want to right. If you're not passionate enough from the start, you'll never stick it out. -- Steve Jobs
After poor action on Tuesday, a very good earnings report from Apple (AAPL) is helping the mood. But the focus will quickly turn to the FOMC interest-rate decision this afternoon. Speculation is growing that the Fed will push back potential rate hikes, with many economists not expecting rates to rise until 2016.
While the market generally loves a dovish Fed, there is some concern this time that a delay in unwinding quantitative easing is an admission that the economy is much weaker than the Fed has been projecting. In addition, lower oil, the ECB QE program and economic struggles around the world are pushing interest rates even lower. There are even arguments that the big problem is deflation rather than inflation. Overall, there just isn't any big reason for the Fed to start rising rates other than to try to maintain its credibility.
The Fed decision comes at an interesting time as earnings reports, other than the mighty AAPL, have been quite poor. Even AAPL mentioned some currency headwinds, but its huge sales and margins offset any issue. It may not be nearly that easy for many other companies that are reporting.
A number of market players viewed the action yesterday as quite significant and there are more and more pundits who think that the market is very close a significant top. Of course, these pundits have been saying that for years. But they are becoming increasingly loud about their pessimism, especially as market volatility picks up.
There hasn't been much talk about the Fed decision today, but the reaction to it is going to give us some important clues as to overall market direction. The market has always reacted favorably to a dovish Fed and c. If there are hints that rate hikes will be delayed and we don't see a big positive reaction, it will be a major change in character.
One of the more interesting developments yesterday was outperformance by small-cap stocks. As a result, overall market breadth wasn't that bad. That is probably a function of money moving from big multinationals with currency exposure to smaller stocks that don't have that problem. It is intriguing news for stock picks and the increased volatility is making for some interesting trading.
Earnings, the Fed, low oil, European QE and a host of macro issues is making for a very interesting market. The bears are correct that the conditions for a market correction are building, but it has very seldom paid to be overly anticipatory when there is a central banker that can be even more dovish.
Some huge target increases are driving AAPL higher in the premarket, but futures are flat. Stay on your toes.