The action today was supposed to provide us with some insight into whether the market feared a more hawkish Fed. What we had instead was a very good illustration of how computer algorithms react to news headlines.
Janet Yellen clearly indicated a stronger hawkish bias in her comments this morning. She hedged a little by pointing out that economic data were still going to impact the ultimate decision, but clearly she was setting the stage for a potential hike.
The market sold off for a minute or so on this news and then blasted higher and trapped all the slow-moving humans who tried to short the indices on the news. The market was looking quite good until Federal Reserve Vice Chair Stanley Fischer appeared on CNBC and "clarified" that interest rate hikes were likely on the way.
Fischer really didn't add anything new but the headline was a perfect opportunity for the computer algorithms to launch their sell programs. That drove us straight back down in a hurry. Nothing had really changed. It was just an opportunity for the machines to move things around.
Of course, that was the setup for the standard bounce into the close. That is almost routine these days and was a perfect way to cap off the biggest trading-range day since early July.
The indices ended down slightly and breadth was negative, but the late bounce prevented any overt technical damage. We are still within the recent trading range, but the bears have gained a slight edge.
The market has a tendency to quickly shrug off Fed-induced concerns. Unfortunately for the bears, it just isn't as simple as hawkishness equals selling. One thing in particular that still favors the bulls is that there was some decent stock picking again. Names like NetEase (NTES) and Facebook (FB) looked quite good and even momentum favorite Acacia (ACIA) bounced back nicely. (Facebook is part of TheStreet's Action Alerts PLUS portfolio.)
It was a slightly disappointing day for the bulls, but it wasn't nearly bad enough to produce any real shift in the prevailing uptrend.
Have a good weekend. I'll see you on Monday.
