After climbing to within 4 points of its all-time intraday high of 1,850.84, news from the Federal Reserve and the International Monetary Fund (IMF) snatched victory from the S&P 500 on Wednesday. The index had rallied for three consecutive days, but gave back a good portion of those gains in the past two days.
The initial turn from the high of the day coincided with an IMF report that warned about trouble in emerging markets. Stockholders received a second blow when the minutes from the latest Federal Open Market Committee (FMOC) meeting showed that some members were in favor of an early hike in interest rates. The Fed didn’t increase rates but continued to cut its bond-buying program by $10 billion to $65 billion per month.
U.S. residential construction fell 16% from December to 880,000 units in January, which was below an expected 980,000. But most economists tend to agree that the shortfall was weather-related.
At Wednesday’s close, the Dow Jones Industrial Average fell 90 points to 16,041, the S&P 500 lost 12 points at 1,829, and the Nasdaq was off 35 points at 4,238. The NYSE primary market traded 12.5 million shares with total volume of 3.6 billion shares, compared to total volume of 1.9 billion shares on the Nasdaq. Decliners outpaced advancers on the Big Board by 1.8-to-1, and on the Nasdaq, decliners were ahead by 2.5-to-1.
After Wednesday’s Key Reversal Day on the S&P 500, the formerly powerful “V” formation looks like it’s sagging a bit. But support still exists at the important support line and 50-day moving average at 1,813. And there is major support between there and 1,775.
The “V” still exists on the Nasdaq’s chart, but it too was hit with a nasty round of selling late in the day. Support is at Thursday’s close at 4,238, and then the 20-day and 50-day moving averages at 4,140 and 4,129, respectively.
Conclusion: After my bullish comments on Tuesday, I feel like what us Texans call “snakebit.” It means to experience extremely bad luck, and while I don’t believe in luck, after Thursday, I do believe in being “snakebit.”
The pins were almost, but not completely, knocked out of the bullish “V” formation following the minutes from the latest FMOC meeting when members talked about “maybe” raising interest rates “later this year.” The Fed has mentioned this before, but not when stocks were within a fraction of poking to new highs. Thus, it had a timely negative impact on stocks.
This jawboning power of the Fed usually occurs when the central bank wants to make a point without taking action. Its purpose is to move markets without disturbing them with overt activity.
The overall technical pattern is still bullish. Thus, I remain optimistic but certainly would hold off on further purchases until the market settles down. The Fed’s remarks may have temporarily stopped the market in its tracks, but the chances are high that the near-term trend will resume again.
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.