Fed-Inspired Bulls Leave Little Doubt

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Federal Reserve Chair Janet Yellen’s accommodative words on Wednesday were just what the market wanted to hear, sparking a solid rally that took some of the indices to record highs. The S&P 500 closed at 1,956.98, moving above the peak of 1,955.55 from June 9. All the major sectors moved forward.

As widely expected, the Fed continued to taper its monthly bond purchases by another $10 billion. While most expect Yellen to wrap up that bond-buying activity before the end of the year, she also suggested interest rates would remain low well into 2015. The timbre seemed to be one of not too hot and not too cold, allowing the central bank to wean the economy off life support but not outright requiring it to do so. This has been the foundation for the bulk of the bull market thus far, and it appears investors can expect more of the same for at least several more months.

The S&P 500’s aforementioned close of 1,956.98 was 15 points (+0.8%) better than Tuesday’s close. The Dow Jones Industrial Average gained 98 points (+0.6%) to end the day at 16,906.62, while the Nasdaq Composite closed at 4,362.84, up 26 points (+0.6%).

On the Big Board, advancers outpaced the decliners 2.7-to-1. The Nasdaq’s advancer/decliner ratio was 1.7-to-1. As for volume, the NYSE’s up/down volume ratio rolled in at 4.26-to-1, with the Nasdaq up/down volume comparison coming in at 2.05-to-1.

From a momentum perspective, Wednesday’s action is the kind of thing that inspires new money, something that had been missing with the market’s strength up until this point. While the strong surge could be a tough act for the bulls to follow on Thursday and Friday, it’s still a move that could jumpstart a more prolonged rally.

Nasqaq Chart
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Chart Key

The Nasdaq didn’t move to new highs on Wednesday, although it got close. The ceiling is March’s peak at 4,373, and the index reached an intraday high of 4,365. The pause just under a key line in the sand is most likely a coincidence, but it may be worth waiting to see if the index can fully clear this minor hurdle before planning on a bigger breakout.

Just bear in mind that the Nasdaq may actually need to peel back a little, regroup and then thrust its way above 43,73 to get the fire started in earnest. Still, the undertow is bullish.

SPX Chart
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The real winner, of course, was the S&P 500, hitting new highs. It’s fruitless to apply conventional technical analysis to the index at this point because we’re in uncharted territory. If you trust the momentum to last though, this isn’t a difficult chart to handicap. The bet, so to speak, is one of whether or not traders are going to continue seeing the glass as half full.

Conclusion: The uptrend has been renewed. As I suggested Wednesday, the bulls could get two or three weeks of traction now that traders have a reason to be interested again. Odds are good it will continue to be a choppy ride, however, as Wednesday’s jump has pushed the market back into a near-term overbought situation. Again though, this is the kind of environment where one takes nothing for granted.

For what it’s worth, since the May 20 bottom, the Nasdaq and Russell 2000 are the market’s best-performing indices, followed by the S&P 500 and then the Dow.

61814-index-comparison
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This suggests something of a “risk on” mentality, and though it doesn’t quell the market’s choppiness, it does bode bullishly in the bigger picture.

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.


Article printed from InvestorPlace Media, https://investorplace.com/2014/06/fed-inspired-bulls-leave-little-doubt/.

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