STTG Market Recap June 19, 2013

Bernanke not to the rescue....

Today was a frustrating day for bulls as a breakout yesterday was doused by Bernanke's comments today.  As we wrote in yesterday's recap

Unfortunately this is happening right ahead of a much anticipated Federal Reserve announcement and press conference so volatility could be intense tomorrow.

and

Of course we can ALWAYS have a fakeout where we breakout and immediately fail.  But thus far in 2013 that has not been the case.  The timing is not ideal ahead of the FOMC press conference tomorrow because "taper or no taper" talk will most likely move markets strongly in one direction or the other.

And so it was a very volatile day and the breakout was a fakeout as ironically the Fed was too positive on its economic outlook which means the potential for less support via quantitative easing, which is the drug the market loves more than good economic data in the modern era.   The only thing that mattered today - and essentially the past two months since the last earnings season ended, has been the central banks so today's comments by Bernanke were the sole focus.

At a news conference, the central bank chief said if the economy continues to improve the asset-purchasing program could start winding down towards the end of 2013 and wrap up in 2014.  Bernanke said scale-backs in the asset purchasing program will only happen if the economic data gets better. Interest rate hikes, he said, are a separate issue and "still far in the future."

The market was very displeased and sent the S&P 500 down 1.39% and NASDAQ 1.12%.

Yesterday we had a very nice trifecta for the S&P 500 - (a) it broke out of the descending channel (b) it broke back over the 20 day moving average and (c) made a new higher high versus the prior week's high.  But technical analysis is only worthwhile in a relative vacuum - when you have important news events, that tends to swamp everything and today was one of those days.   As we exited the day the S&P 500 fell back into its channel.

spx

The same could be seen in the NASDAQ and Russell 2000.

nasdaq

rut

 

Breadth was horrid today, one of the worst days in a year at -2136.

nyad

Bonds sold off and yields jumped...

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The U.S. dollar rallied....

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Emerging markets took it to the chin again....

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One area that has stood up well, of all things, is oil - which we mentioned broke out over resistance late last week and has held in very well this week.  Interesting.

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So all in all, so many of these markets are interconnected.  Ironically good news in terms of the Fed's viewpoint on the economy is now bad news for the market.  At least for now.  Even if the Fed only does $30 or $50B a month of quantitative easing it would be a massive stimulus but traders simply want as much heroin in their system as possible and balk at any removal.   We'll see how the next few days play out - since May 22nd it's been a very combative tug of war between bears and bulls, unlike the first 4 months of the year.