Fed Causes Hairpin Turn!

After a long series of days in which the market opened weakly and closed strong, yesterday, the tables turned, indexes starting at a gap-up after ADP employment numbers came out better than anticipated. Small-cap stocks (IWM) started the reversal immediately after opening, but the large indexes succeeded in staying above water until 14:00, at which point the minutes from the latest Fed meeting were released.

The minutes included two information points which sowed concern among investors. Firstly, a number of statements about stock prices being too high, something reminiscent of Greenspan’s comments about “irrational exuberance” back in December 1996, when the Dow Jones traded at the 6,400 point level. Back then, the market very quickly, though, ignored the concerns raised, which then lead to localized volatility.

The most meaningful comments in the minutes yesterday pertained to the Fed’s balance sheets. After years of manipulating interest rates and stepping in to moderate market forces, the Fed now holds $4.5 trillion in assets on its books and at present is interested in getting that number down. This is the first time that there’s an indication that it’s interested in lowering the balance, which was the real catalyst for the market’s fears yesterday. Likewise, the market is anxious about the ability of the Trump administration to make good on its promise to cut taxes on the background of the deep-seeded rift dividing legislators on Capitol Hill.

Earlier in the day, even before the opening bell, the S&P 500 had risen 0.8% and the NASDAQ had hit a historic high after private sector employment figures trounced forecasts. The numbers had 263 thousand new jobs created in the private sector in March, significantly above economists’ forecasted reading of 187 thousand.

In heavier than usual trading, the Dow Jones ended off 0.2%. The S&P 500 shed 0.31%, the NASDAQ falling 0.58%.

The question that arises now is whether the Fed’s intents are going to serve as a catalyst for stronger downward momentum. The technical picture points to things having taken a slight turn for the worse since  March rolled around, with the uptrend since Trump’s victory now under pressure.

The massive reversal movement yesterday only adds a negative element to that picture! The indexes are still trading above technical support levels, though these could very well be tested after the hairpin turn in yesterday’s intraday movement.

The bears, of course, will be quick on the trigger, ready to declare that the market has peaked. It could be that in the future it will become clear that they were right, though for now, it’s not a done deal – at least on a technical level. With that said, a day like yesterday certainly prods investors to look to hedge, or protect themselves in the event of a downturn. It will always be easier in the future to find new opportunities over making up for money that’s here and gone.

On the S&P 500, 38 stocks recorded new 52-week highs, 6 falling to new yearly lows; on the NASDAQ, 71 stocks recorded new 52-week highs, 69 falling to new yearly lows.

Trading volumes came to 7.58 billion shares, above the 6.8 billion average over the last 20 trading days.

Thursday: After the most dramatic reversal movement in 14 months, stocks are likely to face another big test today. The big test will be whether the market falls today and closes beneath the 50-period EMA, something that hasn’t happened since the elections. Closing beneath this level would signal a change in the market’s colors, investors transitioning from a big risk appetite to being desirous of a more defensive posture.

The 50 period EMA passes on the S&P 500 through the 2,344 point level. It’s a level that’s thought of as a support level, based on the average closing price on the index over the last 50 trading days. A breakdown of this level is likely to be seen by some players as exerting a negative impact on the market.

Today’s Economic Diary will revolve around initial unemployment claims at 8:30 N.Y. time. That will be the last figure released before the official governmental employment report for March comes out tomorrow morning.

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Thursday’s Hot Stocks: YUMC, BBBY, MDT, KMX, STZ


Have a great trading day!

Economic Calendar


DAYTIME (EST)EventForecastImpact
Monday10:00ISM Index57.0High
Monday10:00Construction Spending1.0%Medium
Monday14:00Auto Sales0.2%Low
Tuesday10:00Factory Orders0.9%Medium
Wednesday8:15ADP Employment Change175KHigh
Wednesday10:00ISM Services57.0Medium
Wednesday10:30Crude InventoriesLow
Wednesday14:00FOMC MinutesHigh
Thursday8:30Initial Claims245KHigh
Friday8:30Nonfarm Payrolls180KHigh
Friday8:30Unemployment Rate4.7%High
Friday10:00Wholesale Inventories0.4%Medium



Earning Calendar


MONMonsanto CompanyAMWednesday
WBAWalgreens Boots Alliance, Inc.AMWednesday
YUMCYum China Holdings, Inc.PMWednesday
BBBYBed Bath & Beyond Inc.PMWednesday
KMXCarMax Inc.AMThursday
STZConstellation Brands, Inc.AMThursday
PSMTPriceSmart, Inc.PMThursday
ALRAlere Inc.AMFriday



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113.4.2017GMEShortOpen +2.59%
125.4.2017IPXLLongOpen +2.89%