Investor concerns over the global economy, energy sector credit defaults amidst plummeting oil prices, and uncertainty of the Federal Reserve’s monetary policy bias continue to weigh on equities. Wednesday’s two failed intraday rallies reconfirmed that the bears are in control. Do not be deceived by the SP-500’s (SPY) relatively unchanged index price or its positive market breadth. Weakness abounds as our PVA (price-volume-analysis) indicators revealed 75% of the advancing issues and 69% of declining issues respectively closed on contracting volume. In plain English, savvy investors or selling into intraday strength while others are selling on weakness to a market void of buyers.
Chair Yellen is not telling the market what it wants to hear. The Fed remains uncommitted to reversing its hawkish bias and, in a nutshell, “data dependent” monetary policy translates into “reactive” tactics instead of “proactive” strategies. Although the Fed concedes that global economic risks and divergent central bank policies exist, it is still overweighting employment and wage inflation as its primary pressure gauges for the economy. The markets clearly disagree with Yellen and nowhere is this more evident than in bonds as 10 and 30 year treasury yields defiantly and continuously descend in contradiction to the Fed’s monetary policy and view of the economy.
Well, that’s a wrap for this evening. Nothing essentially has changed. I anticipate more short-term bullish rallies failing to achieve higher highs within this primary downtrend. Until then, let’s see Thursday what Yellen is selling during her second day of testimony and which capital markets are buying it.
Signing off @ Hillbent…
*Trends: ST = short-term; MT = Intermediate-term; LT = long-term
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- Vol % = volume percentage greater than average volume
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