Your Post-Fed Market Overview

On
Monday
I mentioned that I would
be
writing a detailed market overview today, and that, barring
anything dramatic and negative I anticipated the tone of the column would be bullish.
So does the action of the last two days change everything? Too soon to tell. Here’s
what I’m seeing in the market.

Positives

1. The Economy:
The economy has been picking up steam, both on a national and global scale.
Economic numbers are strong and improving. Jobs are still a bit weak, but they
appear to be the last piece in the puzzle. It appears as though this pickup
in the economy will likely lead to inflation at some point. The Federal Reserve
came out today and removed the “considerable period” language they
had been using when describing the amount of time they expected to keep rates
low. I still believe they will wait for some signs of inflation taking hold
before they will raise rates — and even then it will be a very gentle
rise in interest rates. This language change did spook the market today, but
the bottom line is that the economy is improving.

2. New Highs vs. New Lows: The number of stocks on Mark
Boucher’s Top EPS/RS New Highs List
has remained consistently solid, although
not spectacular. His new lows list has been barren. Overall I would say that
breadth has been good and this should be viewed as a positive.

3. My Large Watch Llist: Even with all the breakouts over the
last month-plus, there has been no shortage of new stocks setting up in sound
basing patterns. While I’m sure there may have been some damage done today,
there are still many strong intermediate-term candidates that could break out
at any time if the market regains its composure.

Neutrals

1. Foreign
Markets:
The overseas markets in general have participated along with
the U.S. in making strong moves up. I have not noticed any serious warning signs
from overseas that the rally may be topping out. Keep in mind that Europe and
Asia were already closed when the Fed spoke today and that they will probably
get hit with selling tomorrow.

2. UUWNHI (Unofficial, Unscientific, Working/Not
working Hanna Indicator) — Until two days ago breakouts were working very
well. As the market has sold off in the last couple of days, I’ve seen
several attempted breakouts turn tail and drop right through their pivots. Examples
would include
(
CHINA |
Quote |
Chart |
News |
PowerRating)
,
(
SOHU |
Quote |
Chart |
News |
PowerRating)
,
(
ABTL |
Quote |
Chart |
News |
PowerRating)
,
(
ABAX |
Quote |
Chart |
News |
PowerRating)
,
(
CDIC |
Quote |
Chart |
News |
PowerRating)

and
(
PSTI |
Quote |
Chart |
News |
PowerRating)
. Much of this is due to the heavy selling the market has seen
the last two days, so I wouldn’t get overly concerned just yet. I would
keep an eye on those leaders whom are able to hold above support. If they begin
to bounce and then roll-over en masse that would be a troubling sign. On the
short side there have been few choices for intermediate-term players. This may
pick up if the selling worsens.

3. Sentiment — From an intermediate-term
standpoint, most sentiment indicators are overly bullish. (What else is new?)
Short-term, the VIX really spiked today and is already short-term extended to
the upside. This increases the odds of at least a short-term bounce in the market
sometime in the next few days. (Remember, the highest percentage play many times
is to buy an uptrending market that is short-term oversold.)

Negative

1. Accumulation/Distribution:
Although this is the only negative I am listing it is a big one. We
have seen two distribution days in a row.
Two days shouldn’t
have investors jumping out of windows just yet, but it does raise a red flag.
Carefully watch price and volume action in the indices in the upcoming days
and weeks. If you see 4 or 5 days of distribution in a short time period, that
could lead to some real trouble. I’ll be sure to monitor this in upcoming
columns.

The last two days have been difficult,
but I’ve noted for a while that it has been some time since the major
indices had any kind of washout. We may have seen a short-term top, but as of
right now I am not seeing much evidence that would lead me to believe the longer-term
uptrend is in imminent danger. Of course this doesn’t mean that you should
“buy & hold”. Honor your stops, and if the environment worsens,
make sure you proceed with caution. As always, look for opportunities on both
sides of the market. If the market does roll over, you should be able to offset
some of the drawdown with a few short positions.

Best of luck with your trading,

Rob
Hanna

robhanna@rcn.com