There certainly has been a pick up in volatility in both directions over recent sessions. Following the 1.4% gap down in the S&P 500 (SPX) we showed that when this happened in the past (it is very rare), the market sees a sharp bounce and then breaks the low. In other words, the bounce following such a large gap down is typical and not yet a sign for the all-clear signal to put offense back on the field. One good news item is the percentage of bullish newsletter writers in the Investors Intelligence Poll dropped from a near euphoric 59.6% to 52.8%. That is a dramatic improvement in that it shows a bit of nerves showing up, but important lows last year were marked by bull readings of below 45%. Our game plan remains unchanged…wait for our key tactical indicators to suggest a better entry point.
Today we are going to focus on:
- The FOMC rate decision for the January meeting is announced at 2pm today followed by a press conference at 2:30pm. We expect them to hold rates steady with commentary that suggests the Fed is more likely to ease than tighten. The unknown impact of the Wuhan Coronavirus is likely to be mentioned as a possible global growth risk, which only reinforces that view. The Fed is the most important reason we are neutral and looking to add exposure.
- We are watching the U.S. Treasury Bond yields and Banks. If the market expects to make another run higher, the U.S. Treasuries should not be rallying (yields dropping) and Banks shouldn’t be seeing such dramatic underperformance.
- Thus far EPS have been above expectations, and we want to see if the gains hold.
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