The Fed's Dilemma Is Quite Obvious

 | Feb 14, 2017 | 10:48 AM EST
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Stock quotes in this article:

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Strong markets tend to be sticky to the upside. Uptrends create underlying support and dip buyers, so when there is a little weakness there tend to be buyers that jump in quite quickly. The biggest mistake that many bears make is thinking that a market that is extended is suddenly going to collapse. That just doesn't happen, unless there is some significant news catalyst.

We do have a little potential new catalyst today as Janet Yellen appears before Congress, but her prepared remarks aren't causing too much reaction so far. She did have a comment about the dangers of waiting too long to tighten that upticked the odds of a March rate hike, but the market is still skeptical of the idea that the Fed will be aggressive with rate hikes.

The big issue for the Fed is quite obvious. It needs to see how fiscal policy develops under Donald Trump. Janet Yellen is going to try to avoid any major comments about what Trump might do, but the Fed claims it is data dependent and has no choice but to wait to see how things develop. That is probably the main reason the market thinks the chances of a March rate hike are lower.

Overall, stocks are drifting so far and doing a nice job of consolidating recent gains. Breadth is soft with about 2350 advancers to 3800 decliners and the level of new 12-month highs has dropped from over 1000 to about 235.

The optical sector continues to do quite well and one of my top picks for 2017, Oclaro (OCLR) , is breaking out to new recent highs. This one has great numbers, but has struggled to move like it should. The leader in the field is Applied Optoelectronics (AAOI) and it extended its move today.

Another name on my radar is a biotechnology play Sarepta Therapeutics (SRPT) . It has been beaten up over and over and has quite a few shorts in it, but it looks like it is finally finding some support. Adam Feurstein has an article about the stock today.

Uranium is back in play again and I'm using Uranium Energy Corp. (UEC) as my main vehicle. Others in the group include Uranium Resources URRE and Cameco (CCJ) .

I've been a net seller yesterday and today as I lock in some good gains and hunt for new entries. I wouldn't mind some downside action at this point, to create new opportunities.

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