The Dow gains 192 points, NASDAQ 42 points and the S&P 500 index was up 19 points… because Fed Chairwoman Yellen promises to keep interest rates low. This removes some of the overhang concerning a rate hike later this year versus 2015. It gives some wiggle room on the current stimulus cuts in play and gave a boost to interest rates. Whatever the reason or rationale the markets seem to like what is taking place short term. All those worries that pushed stocks down 5%+ are not gone and all is coming up roses. Amazing how a little manure will cause the roses to bloom and the believers to buy.
The primary question from my view is will the bounce off the lows continue? What is believable enough in this move to keep the rally going? In the trading notes this morning I stated that the testimony from Yellen could act as a catalyst for the broad markets and that is exactly what happened. Her comments convinced investors to put money to work and trust in the future. This is a short term catalyst and will assist in pushing the indexes through this level of resistance, but how much longer term will the rally last? There in lies the million dollar question.
As we discussed in the video update tonight you have to respect what the buyers are willing to do at this point. If they are willing to own stocks on what they believe is an opportunity in light of comments from the Fed Chair, we have to go with the trading opportunities. This has been a positive week for stocks on the follow through move on the upside. As we discussed last week in the notes the battle between buyers and sellers is usually resolved by a catalyst and for now that catalyst is the Fed and their take on the economy, jobs and stimulus.
Technology, healthcare and financials were the leaders and they are again taking on that role. Watch for the opportunities within each sector. Utilities, REITS and Bonds have been the benefactor of the selling in stocks. This leaves the question of how they will play out against the current rally in stocks. If the strength continues towards growth stocks look for these sectors to forfeit their gains going forward. For now they have held up and continue to show short term optimism. Money will rotate to where it is treated the best the fastest. For now that is setting up to be stocks again.
The House voted for a clean debt-limit extension through March 2015. The Senate still has to vote to approve the extension, but the lawmakers want to get through the elections before raising a fuss again about spending. It always comes down to vote pandering by those in control. The deficit remains the primary drive to all that is bad in the government currently. A balanced budget act would be the best solutions, but no one is really looking for a solution… just another way to get votes. Watch how the Senate vote goes and what impact it has on the bond sector looking forward.
Plenty of challenges and events to monitor within and outside the markets. We are willing to take it one day at a time and follow the trend short and longer term. Stay focused and manage your risk.