The market only staged feeble bounce attempts in the afternoon after Fed minutes revealed more discussion about pulling back the reins on QE, but stocks did close slightly off lows due to a small push in the last half hour of the session.
The market exploded out of the gate this morning, accelerating to new all-time highs amid early dovish Congressional testimony from Fed Chairman Ben Bernanke. But once Big Ben started to pump the brakes and uttered the words, “On the other hand,” markets turned on a dime and staged a noteworthy reversal. Although the S&P (INDEXSP:.INX) finished down only 0.83%, the fact that it reversed so hard after morning strength is the real concern. The resulting candlestick, from a technician's perspective, has a clear topping tail and volume was heavy on the reversal. After an impressive run in 2013 so far, it would not be surprising or unhealthy for the S&P to at least re-test short-term moving averages, or even a previous breakout pivot at 1600 -- but that's still a long way off. Our firm will monitor key levels and sector relative strength/weakness over the next two days heading into the holiday weekend and go from there.
The market only staged feeble bounce attempts in the afternoon after Fed minutes revealed more discussion about pulling back the reins on QE, but stocks did close slightly off lows due to a small push in the last half hour of the session. The rest of the FOMC is more hawkish than the Fed Chairman, so it is no surprise that the minutes released at 2 p.m. ET were less market-friendly and caused the sell-off to intensify. We are in a Fed-driven market, and since the 2009 lows, every step the central bank has taken has supported asset prices and pushed people into the equity markets. Whatever the cause, big institutional players appeared to take profits today, and that’s worth taking note of. I believe it is unlikely the Fed tapers QE in the next few months with inflation expectations still so low, but the fact that they are talking about it has been enough to cause some anxiety.
The daily chart and the 60-minute charts from today (show below) both show massive topping tails in the S&P. We see the same topping tails across many sectors right now. If nothing else, this is now a spot to clean up some loose longs, in my opinion. If you have been looking for short entry signals, I think this is the strongest one we’ve had in a while, but we’ll see what it leads to. I wouldn't put anything past this 2013 market, so you should tread softly in whatever you do here, in my opinion.
Click to enlarge
Click to enlarge
The 8-day moving average stands at $165.76 and the 21-day moving average stands at $163.11. These are the next levels to watch.