August 26, 2016

August 26, 2016 Yellen In Focus The divergence between price and the momentum indicator, MACD, continues to suggest a pullback is likely. Add this to the seasonal tendency for markets to correct in September, and it is logical to remain cautious for the near future. Throwing a little logic on the technical flame, Friday's appearance by Fed Chairman Janet Yellen at the Jackson Hole retreat has had investors a tad worried and on the sidelines this past week. Several Fed Presidents have been more hawkish over several weeks, laying the groundwork for Chairman Yellen to set expectations for a September rate hike. While a 25 basis point move isn't likely to move the needle much, because expectations have been in place for some time, investors remain cautious about a market reaction to the news. We've long pushed the concept of watching the Dollar Index, currently at 95, as a proxy for how the world perceives the move. The Dollar Index dove to 91.92 when the Fed backed off of any plans to raise rates back in May. As employment levels fell and expectations that the Fed still needs to hike this year, we've seen the index back up to 97.50. We currently sit mid-range. The question is, will the Dollar strengthen on a rate hike? My expectation is that it might, but not by much, and temporarily. The damage to the Euro seems played. A move to 110 should be met with support. The implication is that a rate hike will bolster the Dollar, and hurt the trade deficit, has likely been discounted. Therefore, we need to get beyond the event to eliminate the uncertainty. i.e. the Fed should raise rates by 25 basis points already. Technical resistance short-term runs along the rising tops line just above 2200 and support along its parallel at 2160. Major support starts at 2120 growing more substantial approaching 2080. We remain very optimistic about year-end new highs across the board. The short-term is cautious. S&P500
This entry was posted in Market Review. Bookmark the permalink.

Leave a Reply

Your email address will not be published. Required fields are marked *