The FOMC minutes were released yesterday, and they showed increased pressure to embark on another program of quantitative easing. The statement did manage to take stocks from their lows of the day but failed to result in a positive close. In fact, stocks sagged during the last hour of trading.
The next meeting of the Fed is at Jackson Hole, Wyo., late this month, then again in mid-September. But it seems investors are skeptical of a lasting impact from those meetings, as the Dow Jones closed off 31 points at 13,172, the S&P 500 was unchanged at 1,413, and Nasdaq gained six points to close at 3,074. The NYSE traded 600 million shares and Nasdaq crossed 363 million. Decliners outpaced advancers by 1.5-to-1 on the Big Board and by 1.7-to-1 on the Nasdaq.
On Wednesday, we examined the charts of the S&P 500 and the DJIA. These indices represent the big-cap stocks, and each showed important reversals.
Turning to the small-cap stocks, we see that the Russell 2000 index — representing the bottom 2000 stocks of the Russell 3000 — has experienced a reversal of its own. It is from our internal proprietary indicator, the Collins, Bollinger Reversal (CBR), and occurs on the right side of a double top. The stochastic issued a sell signal, too. But the importance of this chart is that the double top reversed at a significant distance from the high at 846, indicating a lack of momentum that is more serious than the big-cap indices.
On Tuesday, I noted that low levels in the VIX normally indicate a rise in prices, “But at extremely low levels it often reflects a degree of complacency that is counterproductive.” Last Friday, the VIX scored a low of 13.30, its lowest reading since 2007 — a strong indication that we are about to have a decline of 5% to 10% or more.
Conclusion: September traditionally is the worst month of the year for stocks. And from the looks of it, this September will not disappoint. Weak volume, poor breadth, a number of negative divergences — all of that adds up to a technically weak market. Add to this the astounding lack of interest in the Fed’s indication that more stimulus is coming, and we must conclude that the turn down has begun.
However, these indicators apply only to short- and intermediate-term trends. It is premature to conclude that the bull market is over. Thus, long-term investors should freshen up their list of “Stocks to Buy in a Sell-Off.” But traders should pursue the short side of the market.
Today’s Trading Landscape
To see a list of the companies reporting earnings today, click here.
For a list of this week’s economic reports due out, click here.