Move From Oversold to Fed’s Hopeful Minutes

The consensus was right about the bounce, but the Fed FOMC minutes get a serious assist for the move. Oversold bounce was struggling mid-day to hang on the gains, but when the minutes from the last FOMC meeting showed a phone meeting that confirmed the Fed wanted to drop any ties of interest rate hikes to the rate of unemployment traders believed it to be good news and the index all jumped for joy! Depending on how much investors read into those comments they may want to buy stocks on belief the Fed is going to provide more stimulus to the economic outlook. Bottom line… that dirty little secret could give the upside more of a boost than originally thought. That is what we will have to watch as we work through the balance of the week.

Our plan was to trade the bounce and then go short the reversal. That may not pan out now if the general masses believe the Fed is going to help again with stimulus. The speculation pendulum just swung in the other direction and we will have to be patient and see how it all pays out.

Yesterday we scanned and looked for opportunities across the market. We posted the ETFs that we thought offered interesting setups based on our scans and outlook. Today there were some shift as a result of the Fed minutes, and we are looking through the list again for the upside trades if they follow through based on the current activity and shift in belief. I have purposefully kept the comments brief to allow you to make up your mind relative to the current activity.

XLE – Energy holding support above the $88.50 level. Crude oil moved to $103.38 helping the bounce in stocks and commodities. UGA was up as well on the day along with moves in the MLPs.
XRT – Retail held the 200 DMA and bounce followed through on the day. $84.60 break higher is the level to watch for short term trade opportunity.
XLI – Industrials moved to the 50 DMA. $51.40 support is key for the sector short term. held and now looking for move above the $52.50 level for positive move.
SOXX – Semiconductors have been the leader. Tested $77.50 and held with an inside day on Tuesday. Uptrend intact and positive day with $80 next level to gain.
IWM – Small caps regained the $114 support level and at the 50 DMA. Bounced and $115.40 level next to climb over.
IJH – Midcap sector regained the 50 DMA and bounced to next level to clear at $136.40. Following the small cap sector in momentum. Watch and manage any positions.
QQQ – NASDAQ 100 index tested $85 support and held. Cleared $86.60 and confirms bounce in play for the index. Direction?
IYT – Transportation bounced off the 50 DMA. Uptrend still in play near term. Need transport to participate in the upside, at least the Dow theory believes that to be true.
XLK – Technology broke the 50 DMA and moved back above it today. Need tech to remain in the leadership role it has established.
XLP – Consumer Staples still leading during this selling period. Hit new high today.
XLU – Utilities holding uptrend as defensive stocks lead. Getting extended watch and trail your stops to protect your positions.
IYR – Real Estate (REITS) Defensive sector as well holding up. Resistance at the $68.50 mark and a break higher would be a positive for the sector.
IEV – Europe is in uptrend and hit a new high today. Watching for positive leadership short term. The global markets are seeing money rotate towards them in this current environment.
FXI – China broke above the 200 DMA and looks positive on the break higher. Trade setup. YINN leveraged ETF to trade the upside.
EEM – Emerging Markets confirmed the upside move with a gap higher. EDC leveraged ETF.
UCO – Crude oil broke from the triangle consolidation pattern on the upside Tuesday. Nice upside gain on the move.
ECH – Chile broke from a consolidation top and uptrend continuation.

The upside move on Wednesday was a follow through on the bounce from oversold conditions. The FOMC minutes get a big assist in make the bounce more believable based on investor reactions. How they play out going forward is a matter of time. This promises to more interesting now that what we were thinking yesterday. Be patient as we see how tomorrow plays out in response to the new dynamics.