This Could be a Bull Trap of Super Proportions


Stocks reversed course Wednesday, ending the day with all 10 S&P sectors in the black, and the broader market index up 2%. The S&P 500 and Dow industrials had their biggest one-day advance in two years. The pace, however, was set by the small-cap Russell 2000, which jumped 3.1%.

The FOMC released its latest policy statement. With regard to raising interest rates, the Federal Reserve replaced the phrase “considerable time” with it “can be patient.” Many interpreted this to mean that a rate hike in mid-2015 was off the table, even though Chair Janet Yellen indicated that the Fed would continue to be “data dependent.” That could mean an acceleration or delay.

The yield on the 10-year Treasury note rose to 2.15% from 2.10% before the Fed’s announcement.

The rally in stocks was also driven by the energy sector, which jumped 4.2%. However, crude oil succumbed to profit-taking near the close, ending the session up just 1% at $56.44 a barrel.

The financial sector, up 2.3%, was also an outperformer. Bank of America Corp (BAC) rose 3.2%, and JPMorgan Chase & Co. (JPM) gained 2.3%.

FedEx Corporation (FDX) fell 3.7% due to a shortfall in earnings, and United Parcel Service, Inc. (UPS) lost 1.2% in sympathy.

At Wednesday’s close, the Dow Jones Industrial Average gained 288 points at 17,357, the S&P 500 rose 40 points to 2,013, the Nasdaq gained 96 points at 4,644, and the Russell 2000 was up 35 points at 1,175.

The NYSE’s primary market traded over 1 billion shares with total volume of 4.9 billion. The Nasdaq crossed 2.3 billion shares. On the Big Board, advancers outpaced decliners by 7.5-to-1, and on the Nasdaq, advancers led by 4-to-1.

IWM Chart
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Chart Key

On Monday, the iShares Russell 2000 Index ETF (IWM), along with the underlying Russell 2000 index, broke the support line of a head-and-shoulders top at $114.50.

Wednesday’s violent rebound is not untypical of that formation. In fact, such a rebound is common.

As an indication that this rally may fail, note that despite the very high volume and strong positive breadth on the NYSE, IWM’s volume was not much more than each of the preceding two days of selling.


Many of my readers will, no doubt, be convinced of the impossibility of interpreting the market’s response to the Fed’s announcement as negative. However, like the old umpire, I must call ’em the way I see ’em, and what I see is a possible bull trap of super proportions. Also like the ump, I’ll no doubt take some heat from readers.

If I am wrong, and I readily admit to the unusually bullish look of Wednesday’s tape action, we will probably know today. But, with the possibility of a bear lurking in Grinch’s clothing, I’m not going to take a chance of being caught on the wrong side of what could be a nasty whipsaw.

Patience is almost always rewarded.

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.

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