Federal Reserve Fails to Inspire a Rally but Stocks Finish Off the Lows

While the Federal Reserve Open Market Committee’s statement dominate the afternoon headlines the drop in New Home Sales grabbed the morning headlines.  Most economists were looking for a drop of 18.7%, but when the number released the percentage drop was 33%.  Without government help the housing market is showing its true colors, it remains weak.  Not too long after the release the market took off for its lows as volume continued to run hot.  As it did throughout the day volume ran higher than Tuesday’s level, but still well below its 50 day average.  Then came the Fed and their vow to continue their monetary stance for an extended period of time set off a wild ride.  When all was said and done the NASDAQ and S&P 500 notched a day of distribution, but these indexes were able to finish well off their lows.

While many continue to look to the S&P 500 as a leading index I prefer the NASDAQ and Russell 2000.  The NASDAQ was able to close above its 200dma with volume support.  In addition, the index retraced 50% of its move from June 8th low to Monday’s high.  It will be important for the NASDAQ to keep above the low put in today.  Look for how the NASDAQ reacts around its 200dma.

Our low volume market continues even with the Federal Reserve’s statement couldn’t boost volume anywhere near average.  Perhaps the low volume has more to do with it being summer time than anything else.  But, it is something to keep an eye on as we continue to move forward.  It also should clue you in that we still remain on shaky ground and caution is still warranted.  Without a volume clue it is difficult to make a conviction statement in either direction.  We are going to continue to keep an eye out for volume clues.

There were plenty of market leaders holding up today which is a positive sign.  The negative, however, is many traders are already on top of these stocks.  When trades are telegraphed or too obvious they tend not too work.  For example, last summer many were pointing out the head and shoulders pattern on the S&P 500 and how it was setting up to go lower.  But, we did the opposite and blasted higher.  A similar situation is setting up with the market forming the same pattern.  Like last time, everyone sees this formation.  It can work out, but  simply far too many traders looking for this pattern to work out for my liking.

Now with summertime upon us it would be nice for the market to build some accumulation across all indexes.  We can be range bound, but if the market can eek out accumulation that would be most ideal.  If this situation does occur we’ll have plenty of quality setups to trade once this market does move higher, if it moves higher.  For now, be patient and let the market dictate your moves.

Cut your losses