September 22, 2015

September 22, 2015 What Does The Fed Know That We Don't? This was a pretty standard response in the old days, before all this Fed transparency stuff. We used to watch overnight market rates to discern if the Fed even moved. Now they just come out and tell everyone. Europe and Asia aren't used to our western ways yet, so when Yellen admitted that the FOMC voted to leave rates unchanged because there was too much weakness and uncertainty in the Asian and European economies, they asked, "what does the Fed know that we don't?" While our market initially gyrated up and down, off about 65 Dow points to end the day, Europe fell 2-1/2 to 3%. They thought they were getting better. They thought that they had absorbed the dilution of the Chinese Yuan. They didn't realize that the US viewed them as teetering on the brink of global economic Armageddon. Add a quadruple witching expiration and a Friday that investors wanted to go home flat, and last Friday's sell-off was exaggerated. Monday bounced, but that bounce fell short, not holding onto initial gains. Biotech stocks were hammered, as Hilary Clinton jumped on the bandwagon about drug prices being hiked astronomically, and expanding on that to start attacking drug companies for spending money on advertising and getting a tax-deduction as a business expense. The $BIB (ProShares Ultra Nasdaq Biotech Index) fell 8.8% on Monday and is off over 5% today so far. This undermined Monday's rally attempt, but is not the cause for today's weakness. Renewed concerns over China's economy, Atlanta Fed President Lockhart "confident" that we will see a rate hike this year, and Volkswagon's admission that they deliberately cheated the EPA and emissions testing causing one of Germany's top exporters to be questionable as an ongoing concern, all added to this market slide post FOMC. Technically, we didn't quite reach our post FOMC targets of Dow 17,200, S & P 2040, and NASDAQ 5000. It was close, but brief. This is not the "secondary test" of the August low. September is historically the worst month of the year, not October. October is known for its low points, but is up on average. There are many reasons why September bares the brunt of the selling. It used to be that several of the major mutual funds that ran much of the money in this country used either September or October as a fiscal year end. Some still do, but the impact has been lessened as it is easier to produce tax documents more quickly. However, the trend remains that September is when portfolios adjust positions so that they are focusing in on how the year will end. Remember, the consumer rules Back-to-school through Valentines Day or Easter. Tax consequences, especially in stocks that have considerable losses for the year, many of them the high-flying new issues and social media stocks that are now at or near annual lows. Selling losers this far before the end of the year allows funds that actually still like these names to get out and buy back at the end of the year, taking the tax loss to offset any gains. On days like today, when we might otherwise look for a bounce, there appears to be willing sellers to take those losses. We will be getting some significant data next week, including the ISM and employment numbers. This is a test of the recent lows. I believe they will be successful. The immediate test lows set the target points to watch. If we break below them, then we could see selling push us down to the August lows. Those lows are Dow 15,980, S & P 1903, and NASDAQ 4615. Last week's highs, Dow 16,933, S & P 2021, and NASDAQ 4961, represent resistance. All of these resistance levels are soon to be joined by declining 50-day moving averages, thus making them more technically significant. Remember, the focus should shift to earnings and the consumer after we finish the 3rd Quarter next week. As for right here, we are at a half-way pullback from recent low to high. It should provide some opportunity to bounce, but end-of-quarter selling pressure is likely. The "calendar" is a player here. S&P 500
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