Special Bulletin: June 16, 2021

Fed Hints at New Plan – Market Hinting at One of Its Own?

Summer “low volume” trends and investor indecision due to a “cornered Fed” have led to an uninspiring and short-lived uptrend. Last week we wrote, “We have to remain open to the possibility that this new green signal could be negated quickly by bad market action. If that develops, our signal would change back to yellow immediately. The math of the market will tell us when the environment is changing and if we are out of step with the new trend.”

While the markets internal action has technically not been “bad,” it has been weak on most days. As a result of the Dow Jones Industrial average’s high Distribution Day count and its close under the 50-day mav today on higher volume, our Current Market Outlook has been downgraded to “Uptrend Under Pressure” with a yellow light. Our “Core Four” stands with 3 yellow and 1 green light at present (see above).

More technical food for thought: The DJIA and the Nasdaq are currently working on “negative non-confirmation” patterns relative to the S&P500, as they have not yet confirmed a move to all-time highs. Further, the current yield on the S&P500 is a paltry 1.36% and is less than the US 10-year Treasury note yield of 1.57%. Please see our (06/10/21) post for additional concerns. These technical realities deserve an investors full attention and may be serving as a warning of looming weakness.

Having said that, the market could engender a renewed excitement for equities with a sudden, big price move to all-time highs on robust volume in the key indexes; even as early as tomorrow. Also, the end of the 2nd quarter is just 2 weeks away, and portfolio managers are keenly aware of that.

How will the stock market respond to today’s Fed’s decision? We will soon see.

Continuing as a positive market tell, the CBOE Volatility Index (VIX) closed below its all-important 50-day mav (Barely!!). The “fear gauge” is at a flash point. If that index moves violently higher in the next few days, be very careful.

What should investors do now? Stay alert and on your toes! Continue monitoring the US 10-year note rate as an immediate inflation gauge. Be on guard for a vertical violation. Keep watching the regional bank ETF for a breakout of its cup base also for a positive “tell.”

Have a Triumphant day! ® 

Ps. We have closed our Twitter and Facebook accounts. Read about our decision here and here.