The market had a euphoric response yesterday to a Fed it perceived as more dovish than expected. All of the moves you'd expect on a rate cut took place: The dollar dropped, bonds rallied, precious metals bounced, yield-driven stocks moved up, banks fell and stocks in general were up. It was a classic knee-jerk reaction and was aided by program trading that automatically makes all the moves you'd expect on a change in interest rates.
This sort of euphoria-driven program trading reminded me of what occurred following the Trump Congressional speech on March 1. There was a very euphoric response the next day, which was explained by the argument that Trump had been very presidential and had provided some economic optimism.
The bears were overrun that day, but the next day the indices reversed sharply and struggled for the next week. The momentum totally evaporated after the one day of very giddy action.
This feels like a similar pattern. The market response to the Fed was quite extreme, although there really wasn't any major development. The Fed simply acknowledged that it will stay sensitive to the economy and is going to vary its policy as needed. Like everyone else, it has no idea if Trump fiscal policy is going to be the driving force that many hope.
We are seeing positive breadth and small-cap leadership so far this morning, but it's very slow action and there is no continuation of yesterday's moves. Bonds are down and gold miners are not doing anything. The indices are flat, but banks are showing some life after selling off yesterday.
It is unusual for moves like we had on Trump's speech and in response to the Fed to reverse quickly, but the character of this market has been shifting in March. The upside has not been so easy lately, but we'll see if the buyers regain some confidence if the indices can hold.
I've done little. I have Halozyme Therapeutics (HALO) on my radar as it works on a triple-top breakout, but if we see some intraday lows in the indices and weakness this afternoon I will be taking some ETF short plays like Direion Small Cap Bear 3x (TZA) .
