FOMC minutes and oil prices set the stage for stocks

On Tuesday I outlined the continued unfolding story of two issues facing the market… Oil and the Fed. Little did I expect both to haunt the market today. First, oil… as stated last night the commodity is in the process of attempting a trend change and closed at the resistance point of $53.85 per barrel. In early trading the price of crude stayed near this resistance level until the inventory data was released and it fell to $50.61 or down 6.2%. Remember I stated that trend reversals are difficult to accomplish as investor have to be convinced with facts and data… not just speculation. Some facts were released today with the inventory data showing the largest one week jump since 2001. The 10.9 million barrel jump was much more than the 3.2 million forecast. This is what I mean by facts trumping speculation. Granted the speculation pushed the price up nearly 10% the previous two days and today is only down 6.2% leaving a net gain… but, what a ride it has been. This leaves us with the story adding yet another chapter in the bottoming process. Let it play out and as the clarity is gained the direction will be simple to follow. Avoid the brain damage that is experience at this stage of the process with the volatile moves up and down.

The second issue of the day came from the Fed FOMC minutes which were released today. They show a low bar set for the rate hikes to start. The amount of disagreement among the Fed Presidents was of interest and when it is all said and done they may as well have a monkey throw a dart at the calendar to determine the start date based on what I read. The talking heads loved it as they could pontificate and speculate on any number of points. Again this is one of those story lines that has to unfold in time and the volatility created from the speculation is hardly worth dealing with relative to putting money to work in light of the action that may be take at some point in the future. Until it matters keep moving forward.

The outcome for stocks was a stall in response to the jabber on the FOMC minutes, but the drop in oil had some impact as well. Bonds sold initially, but bounced back and were basically unchanged. TLT left a doji candle indicating a potential change in direction, but we have been looking for that to materialize or follow through the last there weeks. All remain on the watch list in relationship to the story line unfolding further and a trend being determined, but for now we wait patiently and move forward one day at a time.

Healthcare (XLV) and Consumer Discretionary (XLY) were the upside leaders on the day. Retail remains one of the stronger sectors currently and that is a good sign relative to the consumer. The consumer is the bulk of the economy in the US and we get the March sales reports next Monday. XLY continues to work sideways with support at the $74.25 level and resistance at $77. A move above the $77 mark would complete a double bottom pattern and result in a continuation of the previous uptrend. This is one sector to keep an eye on going forward to add to the position. XLV remains in the longer term uptrend despite the recent volatility. Biotech has bounced back from the selling helping the upside resume in the broader sector.

China (FXI) set the pace on the day jumping 6.1%. Money moving into the Hong Kong market as trading with Shanghai has open the floodgates. We have recommended the YINN trade if you could handle the volatility and the today only confirms the upside move. Raise your stops and protect your gains. The move in China also helped push the Emerging Markets higher as well.

Overall another mixed day with clear winners and losers. Tomorrow is another day!