The FOMC’s two-day meeting begins today, and Fed chief Bernanke holds a press conference tomorrow, starting at 2:30.
The Street wants the Fed to continue its low interest rate/bond buying stimulus policy, fearful that any tapering off will adversely impact the economic recovery.
For this reason, it perceives sub-par readings on the economy are good, since it stands to delay any change in Fed policy.
While that logic may appear stupid, it is what it is……for now.
That said, the May Housing Starts number should please this element. They fell short of projections coming in at a plus 6.8% vs. a projection of 11.4%. Weather may have been a contributor.
CONCLUSION:
Both DJIA and S&P 500 closed at my resistance levels yesterday, but not before going higher in early trading. This volatility is classic in a news whipsaw market.
One day, it looks like an upside breakout is imminent, the next day, it looks like the market is headed down.
Two things complicate a decision to buy now. For one, the broad-based S&P 500 is up 15% this year alone. For another, we have entered the summer months when the market tends to consolidate earlier gains.
We are in a bull market that has room to run….but not in a straight line. Corrections of 5% are normal, and shouldn’t meaningfully impact long-term investment results.
But 8% to 14% corrections can occur, especially after a big run. Respect that. You don’t want to spend months recouping losses when the next big upleg begins.
There has been a change in the nature of trading in recent weeks.
While institutions are pressured to keep buying, a better mix of selling to buying has developed.
Beware of a rally failure Thursday in face of a Fed-induced rally. Resistance now starts at DJIA 15,246 (S&P 500: 1,645). Support is DJIA: 15,064 (S&P 500: 1,627).
Quadruple Witching Friday looms. While the expiration of stock-index futures, index options, stock options and stock futures hasn’t had a big impact on the stock market, it may this time.
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