The Fed, Interest Rates & China

Another day of defining what investors think about the Fed, interest rates and China. After two days of worry over China’s move to devalue the yuan investors attempted to move on and focus on what is at hand in the US markets. There was plenty of data from Sales, Jobless Claims, Import Prices and Business Inventories. None of them were earth shattering on the positive or negative side of the coin, but they did provide enough of a distraction to get the focus back on what investors┬ácan control relative to valuations of the market… what happens the Unites States. You are smart enough to dissect the data and know what implications it has relative to the markets. But, one note of interest in the markets reaction today… the selling early in the day was a result once again of the data being sound enough to encourage the Fed to hike interest rates. That trickled into banks bouncing back one percent, bond yields rising five basis point on the ten-year treasury bond and the consumer services gaining 1.3%. The day ended on the positive side to follow through on the intraday reversal from Wednesday. Plenty of work left to do, but some calming relative to volatility.

So much to watch and so little direction. The markets continue to get whipped back and forth with the news and speculation. It shows little in terms of confidence and it shows even less in terms of direction. I am still of the mindset that you have to proceed with caution. If you are not a trader stay out of the way of this market. If you are a trader you better be very focused, very disciplined in you habits and check you emotions at the door. To me… I am willing to watch, play golf, have lunch with clients and friends, anything but trade currently. As Kenny Rogers said, know when to hold em’ and know when to fold em’. ┬áI am not into brain damage. This is the type of market that will give you plenty of nervous ticks and this week has been the icing on the cake.

The tally for the ten sectors is now five uptrend, four downtrends, and one sideways trend short term. The downtrend in energy is attempting to bounce off the recent lows and mount a reversal. That is at least what some headlines are spouting off. I do like the chart relative to the bottom potentially being established. I do like the move above $69 on XLE. I don’t like the 1.2% decline in the sector today. The short term downtrend off the May highs is still in place and that would have to be broken to declare even a microtrend reversal. Too early to call. On the trading side it could setup for a swing trade, but it would need to hold the $69 level and then move higher. Plenty of work to be done and too much speculation in the trade. The trends are key as they setup in alignment with the overall indexes currently. Thus, the need to be patient and let this speculation burn off and then choose your trades accordingly.

Last, but certainly not least, the correction speculation in the headlines. There is plenty of talk, pontificating, speculating and attempts to show historical charts to validate the market is going to correct… and soon. The death cross on the Dow Jones Industrial Average (50 crossing below the 200 DMA) is one reason put forth. The weak GDP growth is another. The decline in earnings growth is yet another. The list is long, but until the charts break down and the trend shifts clearly to the downside┬áit is pure speculation. I understand the data, I see it in black and white. But, until the sellers are willing to take the market below key support levels it is nothing more than conjecture. You define your belief… then let the chart and the market confirm what you believe. You don’t get to tell the market what to do or what it should do… it doesn’t care what you think. It’s the market, simply put.