Volatility Picks it up a Notch

February 1, 2018.

Stocks on Wall Street continued to rise yesterday, capping off a beautiful start to the year – with the best monthly performance on the S&P 500 since March 2016. In summary for the month of January, the Dow and the S&P 500 recorded gains of 5.6% and 5.8% respectively. The NASDAQ soared 7.3% on the month, its best monthly performance since October 2015.

The Federal Reserve has not had a substantial impact on the market of late, but yesterday, investors responded strongly to the Fed’s policy announcement. There was no surprise in that rates weren’t hiked, but the tone that the Fed employed was surprising, leading a number of computerized trading programs to engage in automatic selling. After panic surfaced to a certain degree and the daily low was broken down, buying programs went into motion and succeeded in bringing the market back a number of points into the green, where the market closed on the day.

The chaotic movement on the indexes was even more pronounced on the Dow Jones, which traded in the green all day long thanks to the stellar numbers of Boeing (BA), which soared almost 5% to the $354.37 level. At this price, Boeing is the stock that exerts the biggest influence on the Dow Jones. The blue chip index is price-weighted. In other words, individual stocks’ respective price level is the mechanism for calculating the index’s price level. The higher a stock’s price, the larger the weight it has on the index. Boeing, today, is the most expensive of the index’s 30 stocks, followed only by Goldman Sachs (GS), which ended yesterday at the $267.89 level, and MMM, which closed at $250.50.

Whether or not the Dow is the most reliable market gauge is another question. Even though a single stock can tip the index in either direction, the financial media likes the index and it receives extensive coverage.

Daily Summary: The Dow Jones rose 0.28%, the S&P 500 tacking on 0.12%. The NASDAQ ended lightly up by 0.05%.

The biggest risk as of now in the market is not bad earnings numbers but rather, the phenomenon of “selling the news.” Microsoft (MSFT) reported yesterday after closing; its stock, though, was already stretched on the charts after two-months of non-stop gains. Facebook (FB) as well, which reported solid numbers after closing, is stretched – and after rapidly plunging 5%, succeeded in recovering and ending late trading up 1.6%.

We’re going to see additional reports today, and the chances are good that we’ll see sharp movement in both directions given the current tenor of the market. The volatility is picking up a notch. I suspect that the large movement we saw yesterday as a result of the Fed is only a preview of what is yet to come.

Thursday’s Hot Stocks:  FB, T, PYPL, EBAY, MSFT

Today’s IPOs: CAAP, HUD, SLGL

Have a great trading day!

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