Stocks jerk lower on Fed Yellen’s rate-hike remarks

Friday, May 22, 2015 -

Federal Reserve Chairman Janet Yellen flip-flops on likely rate hike this year and all the speculative traders decide to pull back in fear that one of these times she may eventually mean it – ha!

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The U.S. stock market chopped steadily lower on Friday after hawkish remarks from Federal Reserve Chair Janet Yellen, who said the central bank will likely raise interest rates this year, as long as economic activity picks up – giving us a qualifier that ensures zero rates indefinitely.

In a speech to the Chamber of Commerce in Providence, R.I., Yellen said transitory factors were mostly to blame for first quarter weakness.

Limping into the long weekend, the S&P 500 closed down 5 points (-0.2%) at 2,126.06, but on the week gained 0.2%. The Dow Jones Industrial Average lost on both scores, down 54 points today (-0.3%) and ending the week at a -0.2% loss.

The Nasdaq Composite index ended the session down 1 point (less than a tenth of a percent) at 5,089, but was able to book a +0.8% gain for the week. The NYSE finished today at -0.37% and -0.27% for the week. The small cap Russell 2000 was also down for the day at -0.36% but managed to close positive for the week at +0.67%.

Bottom line – we had another choppy mixed day in another choppy mixed week – signs of a market that is exhausted and near an intermediate top.


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Consumer Price Index Rises

The choppy trading on Wall Street also followed the release of the Labor Department’s closely watched report on consumer price inflation.

While the report said the headline consumer price index rose in line with economist estimates, core prices rose by more than expected.

The Labor Department said its consumer price index inched up by 0.1 percent in April after rising by 0.2 percent in each of the two previous months. The modest increase matched economist estimates.

The core consumer price index, which excludes food and energy prices, rose by 0.3 percent in April following two consecutive 0.2 percent monthly increases. The increase in core consumer prices exceeded the 0.1 percent uptick that was anticipated by economists.

Compared to the same month a year ago, the report said consumer prices were down by 0.2 percent, while core prices were up by 1.8 percent.

Paul Ashworth, Chief U.S. Economist at Capital Economic said, “Overall, with the employment cost index suggesting that wage growth is accelerating and the CPI indicating that underlying price inflation is rising, the Fed can’t wait forever before beginning to raise interest rates from near-zero.

September is still the most likely lift-off date, but July is not out of the question, particularly not if we get another couple of robust rises in core consumer prices in May and June,” he added.

While the Fed welcomes any data that gives them an excuse to at least talk about rising interest rates in the future, in reality this administration will pressure for no action on rates, because rate hikes by the Fed also jeopardizes government borrowing – which is completely out of control just to maintain status quo for masses receiving assistance from the government in return for their vote for more social leanings.

Crude Oil Holding near $60

U.S. crude oil ended snapped a two-day gain to end lower on Friday, as the dollar strengthened against a select band of currencies.

Light Sweet Crude Oil futures for July delivery, the most actively traded contract, lost $1.00 or 1.7 percent, to settle at $59.72 a barrel on the New York Mercantile Exchange.

Record prices on light volume
and weak breadth

While prices this week may have inched to new records and then fell back some, the volume we are seeing is reminiscent of late summer already, much too light for a strong bull market to thrust even higher here.

You can see the topping resistance in the NYSE as prices have gone sideways close to two weeks and appear to be rolling once again to the downside in what is known as a bearish triangle pattern:


Notice how prices have struggled at the upper resistance line of this triangle pattern. Also note how close the bottom support line has come to the resistance line.

This is why this tapered pattern of prices is known as a bearish triangle – because most of the time the lower support line is broken down and prices begin a retracement of between 50 – 68% of the most recent rise (since October). That kind of intermediate correction would take the NYSE near to the bottom of the yellow trading channel. Other indexes would similarly retreat.

Watch closely this tapered pattern of prices for the NYSE. Once we see prices break through the bottom support line we may indeed have a significant summer correction on our hands.

Week In Review

( Stocks Inch to Fresh Records

Monday: The stock market kicked off the trading week on an upbeat note. The Nasdaq Composite led the way, climbing 0.6%, while the Dow Jones Industrial Average (+0.1%) and S&P 500 (+0.3%) underperformed, but still registered new record closing highs. The first session of the week featured a range-bound opening hour that was followed by a steady advance. Heavily-weighted financials (+0.5%) and health care (+0.5%) displayed relative strength from the start while another influential group—technology (+0.4%)—climbed ahead of the market during the early afternoon.

The major averages ended the Tuesday session on an unchanged note after spending the entire day near their flat lines. The S&P 500 settled lower by 0.1% while the Dow Jones Industrial Average (+0.1%) outperformed slightly, edging up to another record closing high. Overall, the Tuesday session was a snoozer that saw the benchmark index bounce inside a five-point range that was expanded to nine points by the close. The index was able to set a fresh intraday record high at 2,133.02 during the afternoon, but returned near its session low by the close. For the second day in a row, heavily-weighted health care (+0.5%) and financials (+0.7%) outperformed throughout the day and kept the benchmark index from dipping too far below its flat line. The health care sector outperformed even as biotechnology struggled to keep pace with the iShares Nasdaq Biotechnology ETF (IBB 360.60, +0.30) adding just 0.1%.

The market finished the midweek session [Wednesday] on a flat note. The S&P 500 shed 0.1%, but still marked a fresh intraday record high at 2,134.72 while the Nasdaq Composite (unch) outperformed. Equity indices spent the first half of the session near their flat lines with the S&P 500 maintaining a seven-point range that was violated to the upside during afternoon action once the Federal Open Market Committee released the minutes from its April policy meeting. The index could not hold its afternoon gain and returned to the flat line by the close. Above all, the minutes revealed that some participants believed that the weakness observed in the first quarter could extend into Q2 with many officials characterizing a rate hike in June as “unlikely.” However, the minutes did not rule out a near-term rate hike in its entirety. Treasuries retreated immediately following the release, but they returned to their afternoon levels shortly thereafter. The 10-yr note settled near its high with the benchmark yield slipping four basis points to 2.25%.

Equity indices posted modest gain on Thursday, but the trading day was very quiet once again. The S&P 500 added 0.2% and settled at a new record high while the Nasdaq Composite (+0.4%) outperformed. The market spent the initial minutes of the session near its flat line, but climbed to highs after the Existing Home Sales report for April (5.04 million; consensus 5.24 million) and the May Philadelphia Fed Survey ( 6.7; consensus 8.0) missed estimates. The ensuing advance was accompanied by a rally in Treasuries, suggesting increased expectations that the Federal Reserve will maintain its current dovish stance. Treasuries continued climbing into the afternoon (10-yr yield -6 bps to 2.19%) while the major averages spent the day near their late-morning highs.

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