Stocks reacted to a Fed decision to not raise interest rates at this time. The Dow ended the day down 65-points but that doesn't do justice to the volatility that we experienced.
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Interest rate decisions where the Fed used to actually make changes to rates used to happen all the time. But since they ran out of options and QE, it's been rather boring after FOMC meetings. But yesterday we finally got one where the outcome was very much in doubt, and what that brought was massive intraday volatility.
Here's the S&P 500 futures on a 5-minute chart which shows the swings a little more dramatically. The 5-minute red bar at 13:00 (CT) spans about 25 S&P 500 points, or about 1.3%. And it was just getting started.
The Dow rallied about 275 points from that low to the high, and then we got a 293-point decline from high to low in the last hour hour of trading.
In the end we saw a bit of a sell the news reaction after 2.5 days of rallying up to the decision. Small caps actually had a good day as no rate hike benefits them a little more than the large caps.
The SPY (S&P 500 / C-fund) busted through the 50-day EMA yesterday after the Fed's interest rate decision, and nearly tested the 200-day EMA, but the last hour of trading took it back down below and that produced a negative reversal day. I used the candlestick charts since they show the reversal more clearly. Yesterday's rate decision was a lot to digest since day traders were likely impacting the volatility, and in the next couple of days we should get more of an idea where this market wants to go. But a reversal on high volume looks bearish for the short-term.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
The Dow Completion Index (small caps / S-Fund) also hit the 50-day EMA, and then retreated. The rising wedge was broken to the upside, but it may have been a fake-out.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
The Dow Transportation Index broke through the top of its rising wedge, but it too failed by the close.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
The dollar was down on the rate news and it fell through the 200-day EMA. A weak dollar tends to help out the I-fund, at least in comparison to the U.S. stocks funds.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
The volatility in China's Shanghai Index continues as this bear flag forms below the 20-day EMA. Janet Yellen may have added China to their watch list. It's no longer employment and inflation, but they seem to now be keeping an eye on China when making their interest rate decisions. It sounds like we better keep watching China too, despite the fact that it is not part of our I-fund.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
The AGG (bonds / F-fund) was up sharply on Thursday. As we mentioned in yesterday's commentary, the Fed had the ability to move bonds and their decision to hold rates down pushed bond prices up and back within the rising trading channel.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
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Thanks for reading. Have a great weekend!
Tom Crowley
Posted daily at www.tsptalk.com/comments.php
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