Stocks Storm to New Highs Amid Confusion as ‘Death Cross’ Looms

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It’s been a busy 48 hours. Stocks recovered from their end-of-day spill on Wednesday to charge to new highs on Thursday as traders digested all the Federal Reserve news from the previous session.

Although there were no big bombshells from the latest Fed policy statement, the general feeling is a dovish one as the “considerable time” statement was kept — referring to how long short-term interest rates will be help near 0% after the QE3 bond buying program ends next month. This was good news since the chatter heading in since there was chatter that those two words would be removed in a slight tweaking of the Fed’s forward guidance. The noting of slack in the labor market was also considered dovish.

But while stocks seemed to believe that, the rest of the market is sending mixed messages amid ongoing weakness in small-cap stocks.

In the end, the Dow Jones Industrial Average gained 0.6%, the S&P 500 gained 0.5%, the Nasdaq gained 0.7%, and the Russell 2000 gained 0.5%.

Some markets apparently believe the Fed sounded a hawkish note, such as in the way the “dot plot” of individual interest rate forecasts by Fed policymakers drifted higher. Or in the way that there were two dissents against the Fed’s statement, both of which believed the Fed needs to start raising interest rates sooner rather than later, given the improvement in the economy and the job market.

Overall, one gets the feeling that confusion reigns.

Stocks in general, the U.S. dollar, and U.S. Treasury bonds were dovish today, or moving in a way that would suggest they are pricing in lower interest rates for longer. But crude oil, energy stocks, utility stocks and precious metals all moved lower, moving in a way that would suggest they are pricing in sooner-than-expected interest rate hikes.

Russell 2000 death cross
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Even when looking at the stock market overall, the message is mixed. While the Dow and the S&P 500 moved to new record highs, the Russell 2000 is moving toward a “death cross” pattern as its 50-day moving average threatens to move below its 200-day moving average for the first time since 2011.

That’s a sign of weakness as small-cap stocks continue a sideways amble going back to December.

Evidence from within the market, such as in the number of stocks participating to the upside, also suggest the situation is not as solid as the bulls would have us believe. The percentage of S&P 500 stocks in uptrends, for instance, stands at just 73% — down from 76% earlier this month and nearly 85% back in July.

And let’s not forget that a number of major catalysts will hit the market on Friday. These include the results from the Scottish independence vote, the coming Alibaba IPO, and the fact that it’s a quadruple-witching session. For now, I remain skeptical and continue to recommend positions like the ProShares UltraShort Oil & Gas (DUG), which is up 3.4% for Edgesubscribers over the last nine days.

Anthony Mirhaydari is founder of the Edge and Edge Pro investment advisory newsletters, as well as Mirhaydari Capital Management, a registered investment advisory firm.


Article printed from InvestorPlace Media, https://investorplace.com/2014/09/stocks-storm-new-highs-amid-confusion-death-cross-looms/.

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