The FOMC meeting ended as expected with Mr. Bernanke offering up more stimulus in the form of quantitative easing. He and the other Fed Presidents agreed to add an additional bond buying program that will put another $45 billion per month into the economic system. That is in addition to the $40 billion of mortgage bond buying already in place. Now we know how Obama plans to fund the deficit. The reaction from investors was initially buying that pushed the broad indexes higher by more than one percent. However, by the end of the day those same indexes were basically flat on the day. Was that an indication of what is in store going forward? We will know soon enough, but the warning shot has been fired for now.
Yesterday we looked at the sectors that made key moves through resistance and put themselves in position to make a move higher. The test move on Wednesday is normal and we will see how each of these plays out going forward. Technology (XLK) was one sector we highlighted which hit against the 200 day moving average again on Wednesday and reversed to test the move higher. One of the key stocks in the sector is Apple. The stock closed at the $540 level after a test of $525 support on Monday. Some would like to say that the tax selling is why the stock moved so low over the last couple of weeks. Not sure I would agree with that synopsis, but the question is more in line with the upside bounce potential as we head into the year end peak sales period? The volatility in the stock has been high, but is now falling and pointing to a mini rally in the stock. That could set up a trading opportunity for those willing to accept the risk of the trade. Semiconductors (SMH) held the move higher and remains in good position to complete a move to the upside short term. Our current target on the ETF is $34.
MLPs and REITs have both been under pressure from the tax hike rumors from the fiscal cliff worries. AMLP, Alerian MLP ETF which is one proxy for the MLPs shows the weakness since the election. The fund has not participated in the bounce in equities over the last couple of weeks, but is worthy of our attention if we are interested in dividend producing assets. $15.80 is one of the key levels of support near term to watch.
IYR, iShares DJ US Real Estate Index ETF equally is a proxy for the REITs. The initial downside move following the election has rallied back above $64 resistance. This sector is in play and the upside is being questioned based on the economic recovery pushing real estate prices higher. A move above $64.80 gains my interest near term for the upside opportunity. The dividend yield is still intact, but the tax liability next year will be the new question to ponder for investors.
Treasury yields jump to 2.9% on the thirty year bond. In light of the Fed action from the FOMC meeting on Wednesday do yields continue higher? I don’t see that as a trend and the short trade on Treasury bonds (TBT) jumped 2.4% on the day. Look for a short term gain in the short ETF and then expect the upside in bond or sideways trading to return. The ten year bond yield climbed to 1.7% and could be in a position to rise to 1.8% short term before reversing course on the Fed action of buying long term bonds.
The mining stocks finally bounced off the lows with GDX, Market Vectors Gold Miners ETF and SIL Global X Silver Miners ETF, both posting solid gains on Wednesday. They are worth attention to see if they follow through on the upside. I would be remiss if I didn’t mention that gold and silver prices have been under pressure of late on the downside. Any moves would be trades.
There is still plenty of concern for investors as they ponder the outcome of the holiday season. We have to track with the trend, but we still have to be ready to exit positions as the market warrants. One day at a time.