Ben Bernanke said pretty much everything the bulls wanted to hear, but we were set up for a "sell the news" technical move and that is what we got.
There was no mention of tapering, and the FOMC seemed to go out of its way to reassure the market that they were going to stay highly accommodative. The main excuse the bears used for the selling was that the Fed noted that there has been improvement in both employment and housing.
I view the selling today as a healthy shakeout after the low-volume rise Tuesday. If we had been weak on Tuesday, we probably would have ripped higher on the news today. We just weren't set up the right way for a bullish reaction to bullish news today.
Longer term, what is important is that the Fed continues to provide underlying support. It is business as usual and we can even afford to have some good news and not lose the Fed. I'm looking for the dip-buyers to be busy the rest of the week and looking for the market to stay in a trading range in the near term.
The bears got the negative reaction to the news that they wanted, but they didn't get any bad news to justify more downside. Be wary of pressing shorts.
Have a good evening. I'll see you tomorrow.
June 19, 2013 | 2:40 PM EDT
The Fed Leaves the Door Open
- No specific talk of tapering, so watch for a strong market close.
There is no specific talk of tapering in the FOMC policy statement, but the positive outlook for housing and employment is cause for concern.
The Fed states: "In determining how long to maintain a highly accommodative stance of monetary policy, the Committee will also consider other information, including additional measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments."
It's vague, but the general impression is there's been economic improvement and the Fed won't stay highly accommodative forever.
The news is neither good nor bad. There is no talk of tapering, but the Fed obviously is leaving the door open to tighten as it sees fit. The problem for the market is that a "sell the news" setup is kicking in as there doesn't seem to be any rush to buy right now.
I'm looking for the dip-buyers to step up soon and wouldn't be surprised to see a strong close. Too many underinvested bulls are on the sidelines for selling to gain momentum.
June 19, 2013 | 10:53 AM EDT
A Classic Setup
- You have to wonder if folks will be looking for an excuse to sell.
The market has a slightly negative bias as market players make defensive moves in front of the Fed. After the low-volume run-up yesterday, it isn't surprising that there is some profit-taking and repositioning as we await the big announcement. We have a classic "sell the news" setup, and even if you think the Fed is going to downplay the whole tapering issue, you have to wonder if folks will be looking for an excuse to sell.
Breadth is running solidly negative with precious metals leading. There isn't any notable action other than a good squeeze in Tesla (TSLA) on bad news. For the most part, stocks are well-contained within trading ranges.
The top stocks on my watch list include Canadian Solar (CSIQ), Vertex (VRTX), Renewable Energy (REGI), Nanosphere (NSPH), InvenSense (INVN) and Immersion (IMMR). I'm not doing much in front of the Fed, but there are decent charts once we shift away from the macro and back to stock-picking.
June 19, 2013 | 8:15 AM EDT
Wait for the Fireworks
- We can get back to work after the Fed announcement.
Since I've become a central banker, I've learned to mumble with great incoherence. If I seem unduly clear to you, you must have misunderstood what I said. --Alan Greenspan
Although the Fed is likely to leave things a bit vague, market players are intensely focused on the FOMC interest rate decision, which is due at 2 p.m. ED. The main issue is very clear: Does the Fed address this issue of tapering and scare the market, or does it reassure that it is business as usual?
Even if the Fed does start to talk about cutting back its bond-buying at some point in the future, there is no question that it will continue to maintain a very dovish tone, but market players are extremely nervous about any slowdown in quantitative easing. The weakness in the indices over the last few weeks is all a product of this tapering talk and the bears are eager to seize on any hint at all that the Fed may not keep the liquidity pump going forever.
The good news is that the bulls still have great faith in the Fed and are likely to jump in, even if we stumble on talk of tapering. The point that many have made is that we aren't even close to reversing quantitative easing. All the Fed is discussing is a slight slowdown in its bond-buying. The Fed is still highly supportive, and if there is any economic weakening, it will take whatever steps are necessary to help.
The bearish arguments are that interest rates have already started to rise, Japan is illustrating how endless printing of currency is not foolproof, and this market is technically vulnerable to the summer slowdown. The bears are looking for a "sell the news" reaction to the Fed, and after the low-volume gains of the last few days, it isn't a bad setup for that.
The bears' biggest problem is that the mindset of this market is still to "buy the dip." The pullback since the May highs has been the deepest correction so far this year but it was relatively minor, and now it is bouncing back just like it has so often. We never really had a real breakdown, especially the S&P 500 never even closed below its 50-day simple moving average.
One of the big differences about the market this year has been sentiment has never been very positive. We always seem to have a big supply of underinvested bulls rooting for the market to pull back so they can put money to work. They have had very few chances, and when we do have a pullback like last week's, they tend to turn bearish and cautious and miss the opportunities. They love the idea of dip-buying but never really have a great opportunity.
So how does this play out today? If there is a selloff on the news, I'll be looking for the buyers to jump in quickly. In fact, an immediately negative reaction would likely be better than a euphoric jump. I'll be looking for a reversal of the initial move but, overall, I don't expect the bears to pressure the market very hard for very long. They may generate a little "sell the news" action, but don't look for it to last long.
It is going to be a very slow day until 2 p.m., but then the fireworks will begin and we can go to work.