News, Data and the Fed…

If we continue on the theme of Tuesday nights video (click here if you missed it), the broad markets were in another tug-o-war with the news, economic data and the FOMC meeting. Each pulled investors a different direction resulting in the up and down movement. The last two days has created intraday volatility that is testing the nerves and emotions of investors. However, a look at the VIX index reflects little in terms of change. Is it rotation? Is it selling and raising cash? Profit taking? In a simple answer… YES! We are seeing all of this from different perspectives money is rotating to global markets, commodities, global currencies, and cash. We see investors locking in profits on stocks like Apple, but putting money to work in the energy stocks like Schlumberger (SLB). Follow the money it moves to where it will be treated the best in the shortest time horizon. Long term dollars have little impact on the micro term moves in the market. Thus, the need to know your time horizon and define your risk in every position.

Back to the news… GDP for Q1 clocked in at 0.2%, now if that was a Porsche 911 time in seconds for 0-60 mph I would be impressed. But, that is the rate of growth for the US economy in the first three months of the year. That make me want to vomit! If we could interject the Fed comments here from the FOMC meeting, “growth slowed due to ‘transitory factors’ in the first quarter” Wow! Let’s blame the weather again. And as far as the slowing in job growth… temporary! And let’s not forget the strike at the west coast ports. Add it all up and you have a perfectly good reason why GDP growth slowed so dramatically. It had nothing to do with the stimulus withdrawal and declining revenue in companies over the last three quarters. And I thought the Wizard of Oz was a fiction novel… read the Fed’s press release, it would make the Wizard of Oz blush. The Fed is living the dream and the US economy is experiencing a nightmare. Bottom line this is news that has been in a trend of when the Fed hike rates for more than a year. June is still on the table… but, not likely until September at the earliest and that assumes the Fed is right in their projections for the economy picking up again in the second quarter and forward.

The dollar made headlines as well. UUP broke support on Tuesday and followed through on the downside today. The dollar index (DXY) broke support today and put everyone on watch relative to the implications. Gold and miners have been a benefactor. Base metals have been moving higher as well with steel and copper breaking through key resistance points. This is something to keep on the radar going forward as the event is starting to develop a trend and that will have implications across the markets global and domestically.

The economy and the Fed ruled the emotions of the day with earnings reports from the likes of Twitter keeping the the Twitter feeds humming about what it means across the social media sector (SOCL). The sector sold to support at $20.55 in early trading, but the buyers stepped back in to keep the short term uptrend in place. Watch the $20.10 level as a key support for the sector moving forward. Facebook held support as well and LinkedIn bounced off support too.

The internet sector (FDN) has been under fire as well. This has been the key leader for the technology sector and is one to watch. SalesForce (CRM) was a rumored takeover target and the stock jumped $12 intraday. No comment from SalesForce which only fueled the discussion and the stock. (perfect example of news impacting a stock and sector.)

The bottom line is to put all of this on your watch list. Define what would validate the story lines and if there is opportunity worth pursuing in the sectors, stocks or indexes. The goal is to build a watch list that is validated by both technical and fundamental data that supports your thesis and provides plenty of opportunity for the risk taken. The market points to where it is going each day… we just have to be willing to follow the lead versus thinking we have some magical way of discovery things only we know… or better yet, someone shares it in a newsletter.

A good example of this type of analysis is the energy sector (XLE) on the way down off the July highs as the story validated the erosion in oil prices, and then the building of the reversal off the January lows (that is still validating as a side note… cleared $82.50 resistance today.) The news, events and trends lead you to positions that offer upside with manageable risk. After all money management is the art of risk management. Start your watch list of opportunities and track for validation and entry points.