Indexes fought back to take all of yesterday’s losses back and more as minutes from the Federal Reserve indicated no interest rate hike anytime soon; I am not sure why anyone assumed otherwise. The S&P 500 gained 0.81% and the NASDAQ 0.85%. Continue to key on the NASDAQ, because if it can finally explode higher out of this range it should lead to very good things overall. If it just continues to tease traders here at upper levels before falling back we are stuck in a bit of purgatory. There are a lot of mixed signals out there with the bond market, volatility market, strength in Dow Jones, weakness in small caps, etc.
Federal Reserve officials discussed rate hike procedures at a joint meeting, but agreed the discussion does not signal rate action is coming soon. That was one of the key data points from the minutes of the FOMC meeting, released Wednesday. Intermittent comments from various Fed officials indicating that a rate increase could happen sooner than expected have rattled investors.
Here are the longer term charts for the indexes – the NASDAQ is where it was 48 hrs ago, again at resistance. It has hit this line in 4 of the last 7 sessions. So maybe tomorrow will be the day it finally breaks above – of course that is just step up; we still need to see a new higher high (the top dotted line). If that happens one can turn from more conservative to aggressive.
We are seeing the volatility index really fall here so in light of the NASDAQ struggles and the bond market action this is interesting.
Yesterday was a tough day in retail but today we had a very nice move in Tiffany & Co. (TIF) which had a decent chart to begin with – the high end are definitely not struggling in this economy with the booming stock market. The high end jeweler posted quarterly profit that topped expectations.
Netflix (NFLX) gained after saying it would broaden its online-video offerings in Europe. This is the exact type of stock we need to see investors (traders) return to for the NASDAQ to break out of this 2 month range.
One note – middle of last week I highlighted the solar ETF (TAN) as one to watch for risk taking – it had been in a long downward drop and it is one of those sectors risk takers pile into when they feel comfortable with the market. Well, look what happened today – so if this continues we might finally be out of these doldrums. A break over $41 that holds would be a good area to watch.
Today’s interesting tidbit via SentimenTrader.com deals with margin debt – and it’s not positive historically:
Last month, margin debt fell from at least a 10-year peak. In the May 1 report, we mentioned that if it fell again in April, then it would have negative repercussions. According to the latest NYSE data, it did. The 15 other times margin debt contracted two straight months after a 10-year high led to positive returns in the S&P 500 over the next year 40% of the time, with a median return of -2.7%. If the initial drop in margin debt was more than 3%, as it was this time, then the one-year return dropped to -12.0%, with only 2 positive occurrences out of 8 instances.