Sometimes the U.S. stock market sends a clear, unambiguous message. But many investors are so caught up in their own opinions that they shut out the message.
This market is controlled by the momo (momentum) crowd. The momo crowd believes blue skies are ahead as far as they can see. The message the stock market sent during Federal Reserve Chairman Jerome Powell’s press conference Wednesday says that the market is vulnerable. Let’s explore the issue with the help of a chart.
Please click here for an annotated chart of S&P 500 ETF SPY which represents the S&P 500 Index SPX. Please note the following:
• The chart shows that the stock market rose immediately after the Fed decision was announced.
• The chart shows when Powell’s press conference started.
• The chart shows aggressive selling on Powell saying that lower inflation was transitory. The key word here is “transitory.” If Powell had not used that word, the stock market was ready to go higher. Bulls were hoping that lower inflation would prompt the Fed to lower interest rates. This stock market is addicted to low interest rates.
• The VUD indicator is the most sensitive indicator of supply and demand in real time. In simple terms, stocks fall when supply exceeds demand, and vice versa.
• The chart shows the VUD indicator with periods of orange and high amplitude. This indicates a significantly higher supply of stocks than demand.
• Even Apple’s AAPL, -0.81% stock, which was aggressively bought prior to Powell’s conference, was not immune. Apple stock saw selling during and after the conference. Please see “Prudent investors are worried about Apple’s ‘17% problem.’ ”
• Please click here for the longer-term chart showing the Arora buy signal given on Christmas Eve. Christmas Eve turned out to be the low of this cycle. For the sake of transparency, this chart is unchanged from the original. Ever since the Arora buy signal shown on the chart, the VUD indicator has not shown such negativity until Powell conference. Prudent investors may want to make a note of this. Please see “This chart says to stay bullish on the U.S. stock market.”
• Popular large-cap tech stocks such as Amazon AMZN, Facebook FB, Netflix NFLX and Microsoft MSFT, also saw selling late in the day.
• The market was sending another important message to the momo crowd. The momo crowd’s six favorite stocks reported good earnings; the stocks were up in the pre-market and were sold during the day. The typical pattern would have been for those stocks to bounce in the afternoon. Instead, the stocks were sold in the afternoon. The six stocks are AMD AMD, Akamai Technologies AKAM, Tandem Diabetes Care TNDM, Twilio TWLO, Teladoc Health TDOC and Exact Sciences EXAS.
• Gold bulls were hoping for lower interest rates. Instead, as the dollar strengthened, gold ETF GLD, silver ETF SLV, gold miner ETF GDX and junior gold miner ETF GDXJ were sold….Read more at MarketWatch.
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