FOMC Non-Event, But Markets Sell Lower

Investors wake up in a bad mood relative to earnings, emerging markets and stimulus cuts. The worry about the issues facing the broad indexes continue to spur the sellers to take control. Tuesday’s bounce was erased in the first thirty minutes of trading today. This only serves as notice that investors are still worried about how poor the earning guidance is for stocks, emerging markets that are skating on thin ice at best, and a Fed hell bent on cutting stimulus to give them room to maneuver going forward should things get worse again. Throw in the currently weak economic data and you have plenty of issues to deal with for investors. The uncertainty is the key relative to all of these issues. Until we gain and maintain some clarity relative to the forward guidance the volatility is likely to remain.

The market spent the better part of the trading day contemplating what the result of the FOMC meeting would be. When the Fed did almost exactly what was expected relative to the cuts of $10 billion and a positive outlook for the economy going forward the initial reaction was mixed. After 30 minutes of that it settled in exactly where it was prior to the announcement from the Fed. We are right back to attempting to hold the key support levels. Plenty of worries to go around, be patient and let this story unfold one day at a time.

With all that in mind what did we learn today that was worthy of our attention?

  1. S&P 500 index tested below the support at 1775 to close at 1774. Until there is more clarity on the horizon the index may now be content to trade at the current levels. The next support would be 1745. Index volatility has picked up as well with the VIX index hitting an intraday high of 19. A move back towards the 15 level would show the anxiety is dropping and a bounce may follow. The spike that started on Thursday of last week is not over yet. Watch $32.05 mark on SDS as downside opportunity if the index continues to break and trade towards the next level of support.
  2. The NASDAQ index closed below the 4075 support level and the 50 DMA again today closing at 4051. The technology sector is leading the downside along with semiconductors. The next stop may be 4000 on the index for support.
  3. Russell 2000 Small Cap index held 1120 support again after a bounce back to the 1135 mark on Tuesday. The close was below the trendline off the November 2012 low. The move below the long term up trendline is a negative for the index and the overall outlook for the broad markets. TZA is the leverage short trade on the index.
  4. Europe (IEV) bounced 1% on Tuesday and reversed on Wednesday. Not what many expected with the positive economic data in Germany and the eurozone over the last week. We would need to move back above $46.52 to hold the uptrend currently. $45 is the next level of support to watch.
  5. The FOMC meeting ended today and with the results were as expected with more stimulus cuts and hope of an improving economic picture. Another $10 billion is the goal. The reaction was muted as the indexes were already trading lower on the day. The inflation mandate remained, but then there is no inflation. Some selling into the close, but we will see the true response in tomorrows trading.
  6. Earnings have not disappointed in reference to the lowered expectations and outlook. The worries are growing in relationship to this issue as investors start to realize the pick up in the economy is not translating into to growth in earnings. Not surprised, but some seem to think this is the first time this has been stated. The worry is creating volatility in conjunction with the emerging market concerns. If this dominates the sentiment the downside will remain in control with the sellers gaining strength.
  7. Tuesday: Food for thought… with most indexes and sectors attempting to bounce off the lows from Monday, is it a dead cat bounce (no offense intended to cats), or a upside renewal? Watch the bias as it still is pointing to the downside currently. Wednesday: the bias wins as usual. The result of the inside trading day was a move lower and that reinforces the bias from my view. Add the VIX index not dropping back to 15 or below on the day as additional sentiment the sellers are still in control of the current trend reversal. The long this holds true the deeper the drop for the markets.
  8. Facebook beats earnings expectations and is up more than 8% after-hours. This could impact technology stocks tomorrow. Qualcomm beat after-hours as well and is trading up 2.5% and could lend a positive hand as well. The better earnings are the more the worries will be put to the side, but for now we take it one day at a time. Remember Amazon reports tomorrow after the bell as well.

Fear is an emotion that can wreck a portfolio and cause more damage than anything else. Don’t let the fear mongers gain control of your thinking. The trend change is well under way, but it is nothing more than a short term trade at this point on the downside. Protect your portfolio and manage the related risk, but keep your discipline intact and focus on the goal.