Saturday, September 26, 2015

Diver Down

The Market Trend Model (data sheet) moved back to a negative bias on Tuesday when stock buyers evaporated into the ether after the Federal Reserve failed to deliver on a much anticipated interest rate hike at the end of the prior week.

The weekly and monthly time frames continue to show a stock market under distribution. The Nasdaq (weekly chart), the Nasdaq-100 (weekly chart), the S&P 500 (weekly chart), and the Russell 2000 (weekly chart) all appear destined to retest their recent 2015 "flash crash" lows.

The renewed selling of stocks last week may indicate market participants have become unnerved that Janet Yellen cited economies outside of the United States as one of the reasons the Federal Reserve Open Market Committee voted to keep interest rates at all time historic lows (article).  Yellen's recent inaction on interest rates seems to contradict her many pronouncements throughout the year that a 2015 interest rate hike is always just about to occur.

In a typical Yellen doublespeak turnaround, she flipped the script last Thursday during a speech at the University of Massachusetts in Amherst. Yellen proclaimed, "It will likely be appropriate to raise the target range of the federal-funds rate sometime later this year and to continue boosting short-term rates at a gradual pace thereafter" (article).  Janet Yellen and the Federal Reserve have engaged in so much doublespeak for so long, it seems to me they have created a real credibility gap for the central bank, if not a full blown credibility crisis for Janet Yellen herself.

While the stock market remains trapped in an ugly downtrend, be aware that some of the strongest market rallies often occur during down markets.  As always I remain mindful that anything can happen from one day to the next.