- Yellen confirms Fed ready to hike based on current data. - Market gives up gains on Yellen words, rebounds, sprints higher to the close. - Q1 GDP second read better but misses expectations. It is weak any way you slice it or spin it, and hopes for a Q2 and beyond recovery are the same hopes each year since 2008. - Welcome to the Twilight Zone: the Fed, in attempting to get the ammo it needs to fight off the next crisis might create very next crisis it needs the ammo to fight. - Same groups with a few new entrants this past week still look good.
Friday Chairman Yellen confirmed the Fed will continue hiking rates. She did not say "June is on for a hike," but made it clear the Fed will hike rates, not because the economy is so grand (though it likes to suggest that), but because the Fed needs maneuvering room for the next crisis.
What Yellen said:
-The economy continues improving.
-Given the economic gains, raising rates in the coming months may be appropriate.
-Fed does not have the "typical scope" to cut rates in case of economic or other shocks.
So, even the uber-dove Yellen realizes keeping rates at 0 for so long has risks, one of them being no weapons to manipulate markets and wealth when the next opportunity -- I mean crisis -- comes along.
That raises the next question: how much maneuvering room does the Fed need for the next shock, i.e. how many rate hikes will it need? Bullard says 4 in 2016, three more over the next 8 months. Easily doable logistically. The issue is how the economy and market react.
As for the economy, the data Friday was glossed over as an improvement. Q1 GDP second iteration was 0.8%, missing expectations but beating the first read:
GDP, 2nd revision: 0.8% versus 0.9% expected versus 0.5% first read
Consumer spending: 1.9% vs 2.2% expected vs 1.9 first read
Business investment: -6.2% versus -5.9% first read
Sure there were the usual attempts to spin this a good news. The reality, however, is another weak GDP report, revisions higher notwithstanding.
Indeed, according to historical norms, with unemployment at 5% GDP should be 3% to 3.5%. Not close in Q1. But of course there were the 'wait until the second quarter' calls yet again, citing expectations of vast improvement. Same story, different year. Calls for 'this is the year things are better' turns into another pile of crappy data.
As for stocks, they reacted rather sanguine. Another weak GDP report? Nothing changed so keep the status quo. Then you had the Yellen speech. At first they sold off post-Yellen, but they recovered and indeed rallied to a higher session high as shorts covered ahead of the long weekend given the market did not crumble as the chairman confirmed she could and would hike rates. If she absolutely, positively must.
So, bring on the rate hikes, at least before a 3-day weekend. Not a bad response as the rally shows it has some chops in not crumbling like a dried out, bargain brand cookie. The short-covering sprint to the close will certainly give the born again bulls even more fervor with the 'I told you so' predictions (that, of course, started 6 days after SOX started the rally).
Nothing worse than a reformed alcoholic? How about a reformed bear? Gushing is a good word. Everything is coming up roses when not two weeks ago all was dead and decaying. They are dominated by emotional responses that change perspective. The economic numbers still are not great, not at all. Moreover, there will not be a big change in the numbers or any real recovery until policies in Washington DC change.
Thus, in the bigger picture, we have a bounce in a big 1.5 year top. It is like the Titanic movie: it was a ship, it sank, get over it. This is a bounce, it likely fails, deal with it.
How do you with it? Use it. We have some good positions. We are letting them run. We likely won't buy more a lot more new ones until the market shows a test of this last move and then demonstrates it can bounce again. There is, of course, always that chance it won't bounce. Have to be practical and not grotesquely emotional, recognizing the situation for what it is. If you do that, you make money. If you start assuming things based upon preconceived notions clouded by emotions, you end up missing what is in front of you and not buying (or selling) stocks that have set up good patterns and are telling you 'buy me.'
THE MARKET
There was no change in the index charts in the immediate aftermath of Yellen: the indices moved higher ahead of her speech, sold off that move after. Then, however, the sellers could not advance farther and that caused short covering. Stocks rallied back to pre-Yellen levels and then sprinted to the close as shorts were squeezed ahead of a 3-day weekend.
The end result was a new bounce higher after a 2-day pause in the new rally that is not as new as the financial stations say it is because they cannot let on that they did not see the move taking shape and starting, missing the first 2 to 6 days of the move depending upon the index you look at.
The problem is, the move was, as noted, likely short covering and that means the stock market will have to deal with some potential give back early in the week. That does not mean we believe the move is over.
To the contrary, the move looks as if it is still finding plenty of support. Some of the big names are working well (e.g. GOOG), and the same groups that turned leaders over the past couple of months are still leading: oil, construction, drugs/biotech. They are joined by chips and some technology. Indeed, the report this weekend focuses on biotech/drugs as that group is showing a lot of good patterns with good potential. We even toss in FCX as it has a nice new setup.
MARKET STATISTICS
NASDAQ Stats: +31.74 points (+0.65%) to close at 4933.5 Volume: 1.517B (-6.54%)
Up Volume: 1.09B (+265.75M) Down Volume: 391.32M (-350.88M)
A/D and Hi/Lo: Advancers led 2.06 to 1 Previous Session: Decliners led 1.18 to 1
New Highs: 81 (+15) New Lows: 22 (-9)
S&P Stats: +8.96 points (+0.43%) to close at 2099.06 NYSE Volume: 835.9M (+5.46%)
A/D and Hi/Lo: Advancers led 2.06 to 1 Previous Session: Advancers led 1.08 to 1
New Highs: 73 (0) New Lows: 14 (-3)
DJ30 Stats: +44.93 points (+0.25%) to close at 17873.22
SENTIMENT INDICATORS
The sentiment indications this week provide a textbook example of how they work: bears jumped, bulls fell just as the market started its most recent rally.
The irony is, the Fed, in trying to get rates higher in order to have ammunition to fight the next crisis, may precipitate the next crisis. You cannot make this stuff up. You don't have to. Such brilliant people are so blind to the reactions to their actions that they cause the very issues they are attempting to avoid. It is like the old 'Twilight Zone' episode where the man goes back in time to stop a school fire and is actually part of the sequence of events that causes the fire.
18 of 22 over 1.0, 28 of the last 48 above 1.0. Three sessions straight below 1.0 as the bounce continues. Easily enough high ratio readings to bounce stocks and perhaps they are going to make a bounce after this last pullback.
Bulls and Bears: Bulls plunged and bears jumped just as the market was starting its move higher. That is a textbook demonstration showing sentiment is opposite market moves. Everyone from the major brokerages down to the bald guy on CNBC was glum about the market's prospects. Then it bounces.
Bulls: 35.4 versus 40.2
Bears: 24.0 versus 21.7
Theory: When everyone is bullish and has put all their capital to work, where does the ammunition to drive the market come from? There is always new money to start a new year. After that is used will more money be coming? That is the question.
Bulls: 35.4% 40.2 versus 39.2 versus 40.2% versus 44.3% versus 47.4% versus 41.2% versus 45.4% versus 43.3% versus 47.4% versus 44.4% versus 39.4% versus 36.4% versus 34.7% versus 26.5% versus 24.7% 34.0% versus 29.2% versus 26.8% versus 28.6% versus 34.7% versus 36.7% versus 37.8% versus 44.9% versus 41.2% versus 45.4%
Bears: 24.0% 21.7% versus 21.6% versus 21.7 versus 20.6% versus 21.7% versus 27.8% versus 27.8% versus 28.9% versus 27.8% versus 30.3% versus 35.4% versus 34.3% versus 35.7% versus 39.8% versus 39.2% versus 38.1% versus 35.4% versus 36.1% versus 35.7% versus 31.6% versus 29.6%
OTHER MARKETS
Bonds (10 year): 1.85% versus 1.83%
Historical: 1.83% versus 1.87% versus 1.86% versus 1.83% versus 1.85% versus 1.85% versus 1.85% versus 1.76% versus 1.75% versus 1.70% versus 1.75% versus 1.735% versus 1.75% versus 1.75% versus 1.78% versus 1.74% versus 1.77% versus 1.80% versus 1.87% versus 1.83% versus 1.83% versus 1.86% versus 1.94% versus 1.90% versus 1.88% versus 1.86% versus 1.95% versus 1.79% versus 1.77%
EUR/USD: 1.1113 versus 1.1181
Historical: 1.1181 versus 1.1155 versus 1.1142 versus 1.1221 versus 1.1216 versus 1.1199 versus 1.1219 versus 13.1317 versus 1.13145 versus 1.1307 versus 1.13791 versus 1.4252 versus 1.13707 versus 1.13869 versus 1.1405 versus 1.1399 versus 1.14864 versus 1.14864 versus 1.1478 versus 1.15306 versus 1.1450 versus 1.1382 versus 1.1329 versus 1.1293 versus 1.1261 versus 1.2249 versus 1.1289 versus 1.1295 versus 1.1360 versus 1.1317 versus 1.1285 versus 1.1264 versus 1.1278 versus 1.1389 versus 1.1410 versus 1.1397 versus 1.1370
USD/JPY: 110.233 versus 109.70. Dollar bounces, trying to get up and away from the 50 day MA's that have hemmed it in during the downtrend.
Historical: 109.70 versus 109.72 versus 109.99 versus 109.25 versus 110.165 versus 109.985 versus 110.187 versus 109.073 versus 108.856 versus 108.65 versus 108.95 versus 108.47 versus 109.28 versus 108.343 versus 107.10 versus 107.41 versus 107.126 versus 107.312 versus 106.16 versus 106.33 versus 107.36 versus 109.35 versus 111.36 versus 111.79 versus 109.46 versus 109.135 versus 109.06 versus 108.762 versus 109.65 versus 109.29 versus 108.505 versus 107.95 versus 108.175 versus 108.425 versus 109.84 versus 110.45
Oil: 49.56, +0.16. Still trending higher up the 10 day EMA.
Gold: 1215.30, -4.50. Now down to the late March lows and in good position to bounce back upside in a relief move, but it has not set that bottom for a bounce yet.
TUESDAY
Friday stocks resumed the upside after a 1 to 2-day pause. The key to start the week is whether there is some give back of the move given the short squeeze last hour surge Friday.
That said, some give back of the Friday move does not give back the rally. It still appears to have solid underpinnings for now. We are a bit disappointed in the late upside as we wanted more of a test before resuming the move. Again, perhaps there is some give back early that helps.
Even so, we have several very nice patterns to play upside regardless of any early week moves one way or the other. We see the same areas still showing good accumulation and upside setups, so we plan on continuing making those plays as long as the market provides them.
Have a great Memorial Day!
SUPPORT AND RESISTANCE
NASDAQ: Closed at 4933.50
Resistance: 4960 is the September 2015 intraday high, an important reversal point for NASDAQ. 4969 is the April 2016 recovery high 4999 is the October upper gap point 5007 is the 12/31 upper gap point from that big gap lower 5008.57 is the early March 2015 post-bear market high 5042 is the March 2015 high 5100 from the April peak and early May peak 5162 is the early November peak, 5176 is the December intraday peak
Support: 4920 is the lower gap point from mid-October 2015, the January 2016 lower gap point 4916 is the mid-November 2015 low 4899 - 4902 from the September 2015 peak, July 2015 low 4894 is the September 2015 closing high The March 2015 lows at 4843 and 4825 4836 is the March 2016 peak The 50 day SMA at 4833. Note the 50 day SMA has crossed up through the 200 day MA. 4815 is the December 2014 peak The 200 day SMA at 4812 4811 is the November 2014 peak (intraday) 4774 is the January 2-15 high 4751 is the January 2015 lower high 4637 is the February intraday high 4736 is the early January lower gap point downside, the last downside gap in the selloff. 4620 is the February 1 closing high 4615 from September 2014 highs, October 2014 upper gap point, late August 2015 low. 4517-4506 from the September 2015 and August 2015 closing lows 4485 are the twin July 2014 peaks 4471 is the January 2016 closing low 4425 is the late February intraday low 4363 is the February upper gap point 4352 is the March 2014 peak 4313 is the January 2016 intraday low 4292 is the August 2015 low 4212 is the February intraday low
S&P 500: Closed at 2099.06
Resistance: 2104 is the December 2015 high 2111 is the April 2016 recovery high 2116 is the November 2015 high 2119.59 is the February intraday prior all-time high 2126 was the April prior all-time high 2130 is the June 2015 peak 2135 is the May 2015 all-time high
Support: 2094 is the December 2014 high, the prior all-time high 2079 is the intraday all-time high from November 2014 2062 is the January 2015 lower high The 50 day EMA at 2054 2046 is the July 2015 closing low 2040 is the March 2015 closing low 2023 is the November 2015 low 2020 is the September 2015 intraday high The 200 day SMA at 2011 2011 is the September prior all-time high 1995 is the September 2015 recovery peak 1991 is the July 2014 high 1972 is the December 2014 low 1947 is the February 2016 intraday high, the late February peak 1940 is the January 2016 recovery bounce peak closing high 1913 is the early September 2015 closing low testing the bounce from the August selling 1905 is the August 2014 low 1902 from early May was the intraday all-time high. 1897 is the prior all-time high hit in April 2014 1891 is last week's intraday low prior to the miraculous reversal. 1872 is the September 2015 test low of the August low 1867 is the August 2015 low 1862 is the October 2014 closing low 1859 is the January 2016 closing low 1820 is the October 2014 intraday low 1815 is the April 2014 low 1812 is the January 2016 intraday low 1772 are the Q4 2013 highs and lows
Dow: Closed at 17,873.22 Resistance: 17,978 is the November 2015 peak 18,100 to 18,181: interim peaks in the December 2014 to July 2015 range 18,168 is the April 2016 recovery high 18,288 from March 2015 18,351 is the all-time high from May 2015
Support: The March low at 17,786 June 2015 low at 17,715 17,748 is the mid-April China margin selloff and the bottom of the 5 month trading range The 50 day EMA at 17,605 17,351 is the September 2014 all-time high. 17,265 is a December 2015 closing low 17,245 is the November 2015 closing low 17,152 is the mid-July post bear market high The 200 day SMA at 17,124 17,068 is the early July 2014 peak 17067 is the December 2014 low 16,970 is the June 2014 former all-time high 16,946 is the June 2014 peak 16,933 is the September 2015 recovery intraday peak 16,740 is the mid-September peak and potential apex for a right shoulder to a head and shoulders pattern 16,736 is a prior all-time high from May 2014 16,670 is the December 2014 peak and the recent August 2015 relief bounce peak. 16,665 is the late August 2015 closing high 16,632 is the April 2014 peak 16,621 is the late February 2016 peak 16,589 is the December 2013 former all-time high 16,526 is the early January resistance 16,511 is the January 2016 intraday high 16,506 is the March 2014 peak 16,466 is the January 2016 recovery closing peak. 16,368 is the August 2014 low 16,117 is the October 2014 closing low 16,058 is the early September 2015 low 16,026 is the April 2014 low 15,855 is the October 2014 intraday low 15,766 is the January closing low 15,666 is the August 2015 closing low 15,450 is the January 2016 intraday low 15,372 is the February 2014 low 15,370 is the August 2015 low
ECONOMIC CALENDAR
May 27 - Friday GDP - Second Estimate, Q1 (8:30): 0.8% actual versus 0.9% expected, 0.5% prior GDP Deflator - 2nd, Q1 (8:30): 0.7% prior GDP Deflator - 2nd, Q1 (8:30): 0.6% actual versus 0.7% expected, 0.7% prior Michigan Sentiment - Final, May (10:00): 94.7 actual versus 95.5 expected, 95.8 prior
Market Data 
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