Buyers believe Fed hike less likely on economic data

By September 15, 2016Jims Notes

MARKET OUTLOOK: 

The broad indexes rose today on the belief that bad economic data would be good news relative to the Fed and interest rates. The hope the Fed would reconsider the need to hike rates following some weaker economic data was the driver and we will watch to see how it all unfolds. All is well after another day of hope puts the buyers back in play… at least for the day.

All ten sectors were positive for the broad index with technology, telecom, and energy leading the way. The catalyst today… hope the Fed will stand down on interest rates. The reality of data has a way of being the equalizer. Only time will tell how this unfolds, but for now, the speculation on interest rates has shifted to neutral from a hike being priced in. Watching and building a strategy to take advantage of the facts as they unfold versus the speculation as it swirls from day to day.

Biotech (IBB) downside pressure from comments by the White House and Congress on pricing policies pushed the sector to test the recent lows. The result was a return to the trading range of $277-287 near term. The break through the top end of the range on the close was positive for the upside… but, it first must follow through on the positive move. Patience is the key for now as we watch to see how it unfolds.

REITs (IYR) have been lagging in response to interest rate worries along with some talk from analyst downgrading the sector on valuations. The break of support at the $82 level has tested the support at $78.75 and watching for a decision on the move. Yield worries weighing, but the news on Thursday allowed the sector to bounce off the current support. Patience as it unfolds.

Treasury yields broke from the trading range on worries about the Fed hiking rates last week. They cleared resistance at the 1.62% level and accelerated to the 1.73% mark and closing Thursday at 1.7%. The thirty-year bond moved to 2.47% and equally broke from the range on the move. The short trade with TBT hit the entry at $32 on the move. The next FOMC meeting is now a topic of conversation relative action by the Fed. The downtrend is still clearly in play for the micro trend. TBT at $32 entry ($32.37 entry) Watching how this unfolds with the speculation at hand. Stop at $32.50.

Gold (GLD) made a move below the support at $125.25 level temporarily and then bounced on the Fed speculation of no rate hike on Thursday. The move is impacting the psyche of the metal near term and watching the downside opportunity if this continues. The gold miners (GDX) are testing support at $25.25. The jury is still deliberating on the directional decision, but a break of this level could get ugly.

Crude Oil moved to $43.91 on Thursday to keep the downside worries surrounding the Fed. Supply data out showed more building in supply Wednesday moving the price lower and modest bounce today keeps the downside risk in line with expectations currently. Watching today to see how it unfolds relative to the follow-up and the support at $43.40. Supply speculation and the OPEC meeting remain a driver for the sector near term… patience. Energy stocks rose 1.4% in response… holding support at the $67.75 mark. Watching how this unfolds.

Volatility index hit 20.55 in early trading on Monday and closed at 16.2 on Thursday. The volatility is in play, but flattening out currently as investors await the FOMC meeting approaching. The anxiety towards news and speculation shows the need to be patient and manage the risk. I remain neutral for now on the anxiety levels in the market, but trading is keeping it interesting.

The broad indexes moved higher with the S&P 500 index bouncing off the 2125 mark and bringing hope the Fed would not hike interest rates. The speculation in the commodities remains as well with some mixed results of late in crude and gold on the downside. The worries about the Fed remain with the FOMC meeting coming next week. Global economies are not showing much growth and the ECB comments prompted some rumors. The outlook remains cautious with plenty of rumors and speculation driving the day-to-day activity.