Given the degree of selling in momentum tech and small-cap issues on Monday, I'm not sure anyone saw Tuesday's rally coming. Sure, Monday's negative-60 reading on the McClellan Oscillator (see chart below) was a tip-off that a short-term rally was in realistic probability. But I suspect the move had more to do with a comment made by The Wall Street Journal's Jon Hilsenrath during an afternoon webcast. Specifically, Hilsenrath noted his expectation that the Federal Reserve would keep the words "considerable time" in its policy statement -- in reference to keeping interest rates low on U.S. Treasuries -- and this is what likely led to the upside drive.
Suffice it to say Wednesday's big event will be the 2 p.m. EDT Federal Open Market Committee announcement and forecast, along with Fed Chair Janet Yellen's press conference 30 minutes later, at 2:30 p.m.
The below chart shows the McClellan Oscillator and the SPDR S&P 500 (SPY).
I receive a fairly constant flow of requests for comments on the natural gas market. But, given the crummy action in both the front-month natural gas futures contract and in the United States Natural Gas Fund (UNG) over the past couple months, there simply hasn't been anything worth commenting on -- until now, that is.
As you can see on the chart above, the front-month October natural gas futures contract broke above its short-term downtrend line, and closed the session above its 50-day simple moving average. On top of it all, the relative-strength index is desperately trying to hold above the 50-center line. Now, keeping in mind that I am by no means wildly bullish on natural gas, I do believe the bulls have an opening to auction prices up toward the $4.25-to-$4.26 area as long as they defend the five-day and 10-day exponential moving average on any near-term dip. A close beneath the 10-day exponential moving average would send this instrument back to the sideways-chop penalty box.
Moving on to the major market ETFs, we see that Tuesday's rally propelled both the SPY and SPDR Dow Jones Industrial Average (DIA) through their short-term downtrend lines. While we must remember that anything is possible following Wednesday's FOMC announcement and press conference, I think it's pretty clear that both ETFs appear to be headed to new year-to-date highs.
The Powershares QQQ Trust (QQQ) and iShares Russell 2000 ETF (IWM) also advanced on Tuesday, but I wouldn't label either move as anything more than corrective for the time being. The QQQ is clearly in a better position than the IWM is -- but, as you can see on the chart above, it does still remain beneath its short-term trendline. As far as the IWM is concerned, we'll simply note that every trader on Earth is well aware of the relative weakness in that market. That said, until the IWM is closing beneath $113.70, I'll either want to look for long opportunities or remain firmly seated on the sidelines.
Here's er'Hone last note in regard to the major market ETFs. It's of little consequence whether the negative-60 reading on the McClellan Oscillator was at all responsible for putting traders in a buying mode on Tuesday. What does matter is that the cumulative advance-decline line continues to display some weakness, the number of stocks making new highs has been anything but spectacular and new lows have been on the rise. Helene Meisler covers a lot of this (and more) in her morning note on Real Money. So if you aren't currently following along with her, I'd urge you to do so.
1. For those involved in or monitoring the potash stocks, please note that the CEO for Russian firm Uralkali, Dmitry Osipov, said the company has no plans to restore its sales partnership with Belarus. Osipov went on to state that no talks had taken place since April, and that no future ones are currently planned. Stocks potentially affected by this story are Intrepid Potash (IPI), Potash (POT), Monsanto (MON) and Mosaic (MOS).
2. Despite Tuesday's strong performance in front-month October West Texas Intermediate (WTI) crude futures, the offshore drillers continue to come under relentless selling pressure any time they begin to lift. When it comes to the shallow and deepwater drillers, the bottom line is that some intriguing values are beginning to present themselves for the longer-term investor. From the viewpoint of a short-term trader, however, this group remains hated and should be allowed to stabilize before you commit any serious money.