Did The Fed Spook Markets Or Was the Short Squeeze Over?

Analysts must employ incredible amounts of self-control to keep from hysterical laughter or uncontrollable slobbering sobbing when trying to explain the ups-and-downs of the stock, bond, commodity and FX markets.

Simplistic explanations are usually best employed as rationales for the awkward and apparent non-coincidental wild intra-day swings and unexplained episodes of random volatility.

It was the Fed minutes. China. Draghi's comments. The dog ate my homework.

None of this really works or is remotely believable, but the talking heads on TV or in alternate media try to get a grip on what's moving the market, regardless.

Thus, it is better to not get into the practice of reading tea leaves or practicing voodoo economics in search of trading directions, market timing or some other resource which will make us all rich, or happy, or just not so confused. Markets move on emotions, herd behavior, greed and fear. There is also an oversupply of computers and algorithms which direct trading in one way or another. Once things start moving one way, they seem to accelerate in that direction, until something or somebody comes along to stop it.

Rinse, repeat.

The Dow accomplished what could be referred to the rise and fall of the Roman empire in just one session on Wednesday, rising as much as 300 points before giving it all up in the final hour-and-a-half plus another 167 points for good measure. It all added up to more losses for the Industrial Average with just four of the thirty component stocks finishing positive on the day.

In other words, it was a very bloody afternoon. Interest rates went soaring, precious metals were hammered (as usual), and the dollar index shot up in meteoric fashion.

TV commentators attributed the drop to the release of last month's FOMC minutes. Yeah, sure. That's why stocks went up immediately after the release, before the collapse, and why equity markets are poised for a positive open Thursday morning. Rinse, repeat. Gibberish.

The cause, as always, is the love of money, the root of all evil. Keep rooting; see what sprouts.

Here's the score:

Dow Jones Industrial Average February Scorecard:

Date	Close	Gain/Loss	Cum. G/L
2/1/18	26,186.71	+37.32	+37.32
2/2/18	25,520.96	-665.75	-628.43
2/5/18	24,345.75	-1,175.21	-1,803.64
2/6/18	24,912.77	+567.02	-1,236.62
2/7/18	24,893.35	-19.42	-1,256.04
2/8/18	23,860.46	-1,032.89	-2288.93
2/9/18	24,190.90	+330.44	-1958.49
2/12/18	24,601.27	+410.37	-1548.12
2/13/18	24,640.45	+39.18	-1508.94
2/14/18	24,893.49	+253.04	-1255.90
2/15/18	25,200.37	+306.88	-949.02
2/16/18	25,219.38	+19.01	-930.01
2/20/18	24,964.75	-254.63	-1184.64
2/21/18	24,797.78	-166.97	-1351.61

At the Close, Wednesday, February 21, 2018:
Dow Jones Industrial Average: 24,797.78, -166.97 (-0.67%)
NASDAQ: 7,218.23, -16.08 (-0.22%)
S&P 500: 2,701.33, -14.93 (-0.55%)
NYSE Composite: 12,695.53, -67.81 (-0.53%)

The Market is a Yo-Yo; Don't Get Strung Out

There are only two directions in which the prices of assets can move: up or down. In it's current state, US stock indices are doing both, a condition which cannot persist for long before the establishment of a definite direction becomes apparent and dominant.

Thus far in the month of February - which has a mere six trading days remaining - there have been eight days of gains and five sessions ending with losses, each swing in either direction being rather magnanimous compared to the prior regime of low volatility and complacency.

On Tuesday, the Dow Jones Industrial Average arrived at the midpoint between the highs and lows for the month. On the 8th, the low reading was a cumulative loss of 2288 points. On Tuesday, the 20th, it closed with a loss of 1184 for the month, roughly a 50% retracing off the lows, ending a string of six straight winning session.

Tumultuous times cry out for straightforward thinking and diligent observation. Direction will soon be determined, and such direction can be employed as a springboard for trading over the upcoming six to 18 months.

At the present, nothing has been determined, but it is clear that stocks are finding a rough road back to all-time highs acquired late in January. Not that all gains are without drawbacks and whipsaws, but the measure will likely be in the breadth of gains and losses in individual stocks.

Tuesday's losses on the Dow were led by Wal-Mart (WMT) which fell by more than 10%, but it was by no means alone. Of the 30 blue chip components, only five gained on the day, and only one - Intel (INTC) - gained more than one percent.

One by one, as fourth quarter 2018 and full year earnings are announced, the Dow stocks are being sold off. Whether this emerges as a buying opportunity or a precursor to more asset shredding is a function of both market sentiment and the continuing narration of the Trump economy.

If the general economy is on the mend, then this episode of doom and gloom will be brushed off as a mere anomaly. On the flip side, should the darlings of Wall Street continue to underperform, more losses lay dead ahead.

Dow Jones Industrial Average February Scorecard:

Date	Close	Gain/Loss	Cum. G/L
2/1/18	26,186.71	+37.32	+37.32
2/2/18	25,520.96	-665.75	-628.43
2/5/18	24,345.75	-1,175.21	-1,803.64
2/6/18	24,912.77	+567.02	-1,236.62
2/7/18	24,893.35	-19.42	-1,256.04
2/8/18	23,860.46	-1,032.89	-2288.93
2/9/18	24,190.90	+330.44	-1958.49
2/12/18	24,601.27	+410.37	-1548.12
2/13/18	24,640.45	+39.18	-1508.94
2/14/18	24,893.49	+253.04	-1255.90
2/15/18	25,200.37	+306.88	-949.02
2/16/18	25,219.38	+19.01	-930.01
2/20/18	24,964.75	-254.63	-1184.64

At the Close, Tuesday, February 20, 2018:
Dow Jones Industrial Average: 24,964.75, -254.63 (-1.01%)
NASDAQ: 7,234.31, -5.16 (-0.07%)
S&P 500: 2,716.26, -15.96 (-0.58%)
NYSE Composite: 12,763.34, -111.02 (-0.86%)

Note: Just heard that Reverend Billy Graham has passed away at the age of 99. A good man has gone to meet his maker.

Dow Hangs Onto Friday Gains Amid Late-Session Selloff

It was options expiration Friday and the volatility showed up late in the day, as the Dow shed more than 200 points off a morning rally, closing marginally ahead. The S&P gained a point and change, but the NASDAQ slipped into the red for the day.

The entire trading day came to matter little in the larger scheme, especially for the NASDAQ, which led all indices with a gain of more than five percent for the week.

With markets closed for President's Day on Monday, February 19, investors will take the time off to evaluate foreign markets and prepare for the seven remaining trading days of the month.

Stocks have clawed back more than half of the losses incurred earlier in the month, setting up for a continuation of the short-term rally well in advance of expected rate hikes at the next FOMC meeting on March 20-21.

This leaves stock indices with strong support at their respective 200-day moving averages, bottoms which look less likely to be revisited any time soon.

After some tumult earlier in February, it appears that nothing of import has changed - besides the value of the dollar and rates on treasury bonds - supportive of the proposition that central banks are still in charge and complete control.

Should investors be worried?

Always. But, presently, they are not.

Dow Jones Industrial Average February Scorecard:

Date	Close	Gain/Loss	Cum. G/L
2/1/18	26,186.71	+37.32	+37.32
2/2/18	25,520.96	-665.75	-628.43
2/5/18	24,345.75	-1,175.21	-1,803.64
2/6/18	24,912.77	+567.02	-1,236.62
2/7/18	24,893.35	-19.42	-1,256.04
2/8/18	23,860.46	-1,032.89	-2288.93
2/9/18	24,190.90	+330.44	-1958.49
2/12/18	24,601.27	+410.37	-1548.12
2/13/18	24,640.45	+39.18	-1508.94
2/14/18	24,893.49	+253.04	-1255.90
2/15/18	25,200.37	+306.88	-949.02
2/16/18	25,219.38	+19.01	-930.01

At the Close, Friday, February 16, 2018:
Dow Jones Industrial Average: 25,219.38, +19.01 (+0.08%)
NASDAQ: 7,239.47, -16.96 (-0.23%)
S&P 500: 2,732.22, +1.02 (+0.04%)
NYSE Composite: 12,874.36, +17.49 (+0.14%)

For the Week:
Dow Jones Industrial Average: +1028.48 (+4.25%)
NASDAQ: +364.97 (+5.31%)
S&P 500: +112.67 (+4.30%)
NYSE Composite: +468.54 (+3.78%)

Rally On! Dow Regains More Than Half of February Losses

With the Dow Industrials posting the fifth straight positive session, he blue chip average has regained more than half of the losses incurred during the first six trading sessions of February.

Standing just above 25,200, the Dow has been an impressive performer following the instant, interest rate sensitive melt-down earlier in the month.

The Dow is up more than 1000 points this week, with Friday's session important as stock options reach expiration.

Last week's scare has morphed into this week's buying opportunity, as investors have scrambled back into stocks after equity funds experienced record outflows just a week prior.

Those who sold at the interim bottom may be experiencing some seller's remorse presently, though the stock market has still has some distance to travel back to all-time highs.

Has anything changed besides sentiment, which is now returning to bullishness after a spat of fear entered the minds of speculators?

Certainly, rising interest rates are a concern, with the 10-year-note reaching four-year highs. The value of the US dollar, as reflected in currency FX pairs and the Dollar Index, is another new feature of the cycle-weary market. The dollar has weakened considerably over the past 12 months and does not appear to have four support.

Higher interest rates on treasuries usually causes strengthening in the dollar, but not this time, befuddling the normally-smug bond and currency analysts. If bond yields continue to rise and the dollar does not recover substantially, then all manner of economic theory can be tossed out the proverbial window.

Whatever the case may be - not discounting the effect of accelerating volatility during the recent downturn - there remains considerable uncertainty which must somehow be resolved, either by a permanent change in market direction from bull to bear, or a continuation of the long rally off the GFC lows of 2009.

Dow Jones Industrial Average February Scorecard:

Date	Close	Gain/Loss	Cum. G/L
2/1/18	26,186.71	+37.32	+37.32
2/2/18	25,520.96	-665.75	-628.43
2/5/18	24,345.75	-1,175.21	-1,803.64
2/6/18	24,912.77	+567.02	-1,236.62
2/7/18	24,893.35	-19.42	-1,256.04
2/8/18	23,860.46	-1,032.89	-2288.93
2/9/18	24,190.90	+330.44	-1958.49
2/12/18	24,601.27	+410.37	-1548.12
2/13/18	24,640.45	+39.18	-1508.94
2/14/18	24,893.49	+253.04	-1255.90
2/15/18	25,200.37	+306.88	-949.02

At the Close, Thursday, February 15, 2018:
Dow Jones Industrial Average: 25,200.37, +306.88 (+1.23%)
NASDAQ: 7,256.43, +112.81 (+1.58%)
S&P 500: 2,731.20, +32.57 (+1.21%)
NYSE Composite: 12,856.87, +110.15 (+0.86%)

Despite Relatively Hot CPI, Stocks Rip Higher

What's that old saying?

It's something like... "don't wish too hard, you may get what you want."

Well, it applies to the Fed, ECB, BoJ and other central banks, which have been screaming for higher inflation ever since the Great Financial Crisis of 2008-09.

On Wednesday, they got some of the "good" news. The CPI for January came in with a gain of 0.54 month-over-month, the biggest increase since January of 2017. Being that both January of this and last year were the high points for CPI, it might be a statistical anomaly, though that thought seemingly hasn't crossed the minds of any economic reporters.

Higher consumer prices in January, however, didn’t substantially alter the overall picture on inflation. The increase in the CPI over the past 12 months remained unchanged at 2.1%.

After stripping out volatile gas and food, the more closely followed core rate of inflation rose 0.3% last month. The 12-month rate of core inflation was also flat at 1.8%.

So, once stock players digested the news, which was released an hour prior to the opening bell, futures nosedived, stocks opened deep in the red, but, within an hour, it was off to the races, despite interest rates - especially the 10-year-note - rising sharply.

The 10-year-note popped over 2.9% yield, while gold and silver - traditional inflation hedges - soared throughout the day.

Seems nobody really knows what will happen, though many profess to have deep inner knowledge of how economics actually works.

Maybe we're all just being played for fools.

Pull my finger...

Dow Jones Industrial Average February Scorecard:

Date	Close	Gain/Loss	Cum. G/L
2/1/18	26,186.71	+37.32	+37.32
2/2/18	25,520.96	-665.75	-628.43
2/5/18	24,345.75	-1,175.21	-1,803.64
2/6/18	24,912.77	+567.02	-1,236.62
2/7/18	24,893.35	-19.42	-1,256.04
2/8/18	23,860.46	-1,032.89	-2288.93
2/9/18	24,190.90	+330.44	-1958.49
2/12/18	24,601.27	+410.37	-1548.12
2/13/18	24,640.45	+39.18	-1508.94
2/14/18	24,893.49	+253.04	-1255.90

At the Close, Wednesday, February 14, 2018:
Dow Jones Industrial Average: 24,893.49, +253.04 (+1.03%)
NASDAQ: 7,143.62, +130.10 (+1.86%)
S&P 500: 2,698.63, +35.69 (+1.34%)
NYSE Composite: 12,746.72, +172.35 (+1.37%)