End of Day Update:
The Fed decided to keep rates near zero, citing global economic uncertainty and low domestic inflation as their justifications. This lead to dramatic volatility and the S&P500 traversed nearly 100-points intraday as it tried to figure out what all of this meant. The initial dip gave way to a huge surge higher, but we were unable to hold those gains and closed near the day’s lows.
It is hard to find anything encouraging about Thursday’s price-action. We got the “good” news people were hoping for, but it failed launch a sustainable move higher. No doubt the previous five-day rally priced in a big chunk the “no hike” pop, turning this into a “buy the rumor, sell the news” trade. That’s what happened intraday and we will see if the fizzle continues Friday.
This week’s rally pushed us to the upper end of the recent 1,900-2,000 trading range. The post-Fed pop launched us well above 2,000 resistance, but it didn’t take long for the breakout buying to stall and we tumbled back under 2,000. It seems few were willing to chase prices higher and that lack of demand could be a huge obstacle in coming days. This left us with an ugly intraday reversal on the chart that stands out like a sore thumb. Thursday’s pathetic close could easily make prospective buyers take a step back as they wait to see what happens. If enough people pause and asses, it becomes a self-fulfilling prophecy as prices continue tumbling on weak demand. This downward spiral will continue until it reaches levels so low that dip-buyers can no longer resist the temptation. Since we are near the upper end of the recent consolidation, we have a ways to fall before we will reach those irresistible levels.
While people were relieved the Fed didn’t do anything to threaten the fragile global economy, that relief could very easily turn into anxiety because the global economy is so fragile the Fed worried it might not be able to handle a nominal 0.25% interest rate hike. While the medicine tastes great, maybe we should be worried about why we need it. Between the weak technicals and renewed worries over global growth, we could easily see the market slip back to 1,900 support. If this dip reignites the emotional selling, we could easily undercut last month’s 1,860 lows.
In the near-term we should be prepared for more volatility and weakness, but this is most likely giving us another opportunity to buy stock closer to recent lows. We need to undercut 1,860 to form a double-bottom and while that will feel scary, it will be another great chance to buy stocks even cheaper.
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Jani Ziedins (pronounced Ya-nee) is a full-time investor and financial analyst that has successfully traded stocks and options for nearly three decades. He has an undergraduate engineering degree from the Colorado School of Mines and two graduate business degrees from the University of Colorado Denver. His prior professional experience includes engineering at Fortune 500 companies, small business consulting, and managing investment real estate. He is now fortunate enough to trade full-time from home, affording him the luxury of spending extra time with his wife and two children.