After Apple's earnings took some of the steam out of the market on Wednesday morning, stocks started to comeback during the late morning and early afternoon, but the Fed's policy statement sent investors running again and we saw losses across the board by the close, particularly the tech sector, thanks to Apple. The Dow ended the day down 223-points.
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The Fed triggered selling was almost certainly emotional money. Not much was said that was not already known, so it could just be temporary noise. Also, after the close, Facebook posted strong earnings sending the futures into positive territory, but we know how volatile they can be.
For the first time in a while, the price of oil was up nicely while stocks were down sharply, so while we know there is a coupling between the two, the Fed still gets the final say. China was down again, but closed well off the lows making what could be a reversal and temporary low.
Just a heads up that I will have "TommyIV" filling in for me tomorrow. I'll be traveling most of the day and may not get the time so he will write a brief market commentary for us on Friday. TommyIV currently writes our Weekly Wrap Up each weekend. I will make time to post the new TSP Talk Plus Signals for Plus subscribers, and send out the alerts.
The S&P 500 Index (C-Fund) and most indices threw us a curve yesterday after Apple and the Fed shook things up and disrupted the "V" bottom we saw forming. Nothing is broken just yet, but the "V" bottom is threatening to look like a bear flag. The difference is the kangaroo tail from last week that could make it less bearish, but that remains to be seen. We've talked often about retesting the lows, and that is still possible, but the chances of a more significant bear market rally are fairly good, even if we have to test the lows first. Watch the summer lows for support for this "V" bottom formation.
The price of oil rallied without stocks for the first time in a while as the Fed took the steam out of what was looking like a oil fueled rally day. Oil has still not closed above the 20-day EMA but if it can do that, it will be a good excuse for stocks to make a bullish run.
China's Shanghai Index may have been a factor early on Wednesday after it broke down on Tuesday and made lower lows on Wednesday, but it did have a nice reversal on Wednesday so perhaps a short-term rally will ensue.
The Dow Completion Index (small caps / S-Fund) shows the bear flag with the kangaroo tail twist. Just a reminder, we had a bear flag forming last September that didn't look very promising for stocks, but it uncharacteristically broke to the upside. So, we'll just that have to wait and see how this wants to play out.
The EFA (EAFE Index / I-fund) was down yesterday but the "V" bottom formation looks a little better here than on the U.S. charts.
The AGG (Bonds / F-fund) was flat and continues to stay afloat which may give the stock market bulls a little pause. Why are bonds holding up? Is something negative for the economy coming down the road? That's what breakout above the October highs might tell us.
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Thanks for reading. We'll see you back here tomorrow.
Tom Crowley
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