The Fed policy announcement often serves as a market catalyst, but that wasn't the case today. The market has been looking for something that will either break us out to the upside or trigger a correction, but we continue to be trapped in a trading range.
What is particularly tricky is that we still have some pretty good support, but there are these niggling negatives. Weakness in biotechnology, semiconductors and small-caps is often a warning sign, and we have had quite a few poor earnings reports, like Twitter (TWTR) and Buffalo Wild Wings (BWLD). Even the Big Kahuna, Apple (AAPL), has lost its momentum despite a stellar earnings report, and those who chased Google (GOOGL) and Amazon (AMZN) on earnings are deeply in the red.
Despite these negatives, the indices still have not committed any major sins. The S&P 500 and Nasdaq are still well over their 50-day simple moving averages and have technical support. There is nothing much wrong with them, but the action in individual stocks is far less attractive and that is the best leading indicator there is.
I'd like to be more upbeat, especially with the Fed obviously on hold for a while longer, but there are almost no pockets of upside momentum right now. Chasing new highs has recently been very dangerous and the key leadership groups are leading to the downside.
When stocks are not acting well, you don't buy them, and that is where I'm at right now.
Have a good evening. I'll see you tomorrow.
April 29, 2015 | 2:26 PM EDT
Fed Decision Changes Nothing
- ·And no indication that a change is coming from the central bank.
It would have been a big surprise if the Fed's policy statement contained anything surprising, but nothing much has changed. The weather received some blame for recent economic weakness but dismissed as "transitory." Other than that, the FOMC's position is essentially the same as last time, with central bankers waiting to see further improvement in jobs and a pickup in inflation before making a move. The important thing for the market is that the Fed remains on hold and has no immediate plans for "lift off."
Some pundits predict that rate hikes will come as early as September, while others say there will be no reason for any movement until next year. There isn't any hard evidence right now that things are improving very quickly. The Fed really has no choice but to remain vague and say it will evaluate incoming data. Of course, the central bank will try to sound upbeat about growth, but the slowness of this recovery after six years makes you wonder what the ultimate cost is going to be for all this financial engineering.
The market had a minor positive reaction at first, but it is rolling back over. Trust in central bankers to keep this market running has been the safe bet. That continues to be the case as there still is nothing to indicate a change is coming, but the overall market action is a bit worrisome.
The market was already showing signs of weakness, and this Fed news isn't going to do anything to change it. While the Fed is still supportive of the market, it isn't going to provide any juice to help it develop better upside momentum.
This price action demands caution because the FOMC decision changes nothing.
Apr 29, 2015 | 10:29 AM EDT
Momentum at a Minimum
- The early bounce is starting to fade.
The computers are programmed to buy gap-down opens immediately, and they are doing just that this morning. They may not stick around for long, but the immediate buying of early weakness is as consistent as the sun rising in the morning.
Apple (AAPL) was the driving force behind the quick bounce, but overall breadth quickly improved as well. The action is still running almost 2-to-1 negative, but biotechnology is bouncing and the momentum list is about even. The biggest challenge for traders is that there are few pockets of momentum. Earnings wins by GoPro (GPRO) and Helen of Troy (HELE) have been overshadowed by disasters from Buffalo Wild Wings (BWLD), Stratasys (SSYS) and, of course, Twitter (TWTR).
I'm itching to make up ground I've lost over the last few days, but there isn't much on the radar. Lion Biotechnologies (LBIO), which was a recent Stock of the Week, has a $30 target from Chardan Capital Markets this morning and a decent chart, but generating upside momentum is challenging in the biotechnology group.
The early bounce is now starting to fade and rolling back over. I don't expect much more to happen while we await the Fed announcement at 2 p.m. ET.
Apr 29, 2015 | 7:55 AM EDT
Groping for a Direction
- It should be slow going while we await the Fed news.
"It slightly worries me that when people find a problem, they rush to judgment of what to do."
--Federal Reserve Chair Janet Yellen
Although there hasn't been much speculation about today's FOMC interest-rate decision, the market has been groping for a direction and is technically setup for a reaction to the news.
There have been a number of niggling negatives lately as indices hover near all-time highs, but it has been trading-range action with underlying support kicking in just when things begin to look precarious. The biggest issue lately has been deterioration under the surface, particularly in key groups such as biotechnology and semiconductors.
In addition, there has been mixed action in momentum names. Apple (AAPL) put up a great earnings report Monday but pulled off a gap-and-reverse despite plenty of upbeat analysis. Twitter (TWTR) added to the let-down when poor earnings news was accidently released early.
Overall, the response to earnings has been generally good as market action has been trending up for eight days or so, but not good enough to put the market into high gear so that it could blast through the highs. Greece is still bubbling in Europe and central banks around the world are working on more stimulus, but the picture is muddled, which is why today's Fed decision has the potential to move the market.
The market isn't expecting anything new from the Fed today. There is no press conference this time and quite a few Fed members recently offered conflicting views as to when rates may "lift off." Economic growth is still tepid and there are few signs of inflationary pressures, so there is no real pressure to be hawkish. Expectations for rate hikes have been pushed back to at least September.
Previously there was talk about a rate hike as early as June, but the market has now priced in a zero potential of that occurring. There are still pundits having that debate, but the market knows that nothing is going to happen for a few months at least.
The big question today is whether the market tries to read between the vaguely worded lines of the policy statement and find some reason to believe that there is hawkishness in the air. Better economic news or inflationary pressure is inevitable, and the rate hikes will start. Many bears believe that is going to mark the market top, but they have been over-anticipating this for some time and have paid a heavy price.
The market has been dealing with underlying issues and will be highly sensitive to any new perceptions in the FOMC policy statement. The weakness under the surface has been an issue lately and if that continues to fester, it is going to be a problem.
It should be slow going while we await the Fed news at 2 p.m. ET. A slightly negative open is on the way and plenty of talk about Twitter.