The sun is up and finally so is the Yinzer Analyst and while he’s getting ready to host a discussion on active ETF’s at the Spring 2015 ETP Forum next Wednesday, there’s always time to discuss the market and man did this go south in a hurry. We’ve talked before about how this bull cycle (at least from 2011 on) has been a Fed induced rally because every bull cycle has a driver that allows investors to unleash their “animal spirits” that usually leads them to do really smart things like putting 100% of the their portfolio in small-cap biotechs who lack a marketable product like the Bioshares Biotechnology Clinical Trials ETF.
And this time is no different than any other except that the Fed’s desire to normalize interest rates is seemingly taking precedence over a weakening U.S. economy. We’ve used this chart to illustrate our point but the combination of rate hike talk from Fed governors (of the non-voting variety) along with disappointing economic data delivered has helped keep a lid on the market…for months now. Since the end of the QE3 it’s been back and forth with the market up a whole whopping 1.5% from November through yesterday’s rout. So is the end of the Fed rally?
Starting with the longer-term weekly chart for SPY, yesterday’s sell off has put us with ten points of breaking the ascending wedge pattern and kicking us into a trading range. Daily charts are nearly identical with $205 acting like a line in the sand.
Back to the longer-term there’s plenty of firm support at $200 and we’re close to a momentum low similar to that of March 13th with the only major difference being that there is no major FOMC event coming up to help kick us higher from here. Holding $200 would give a lot of investors a much needed confidence boost but being back at the QE3 highs would mean we’ve been consolidating for over five months and as most topping out periods last 9-12 months, we could have up to a half a year of back and forth action in front of us.
But the news isn’t all bad for investors who made sure to have a foreign component to their portfolio, just check out this weekly chart of the iShares MSCI EMU Index (EZU) which is so far holding above its 20 week moving average.
On a relative momentum basis the free-for-all of U.S investors shifting overseas is even more startling. Probably because they’ve been so busy pulling all of their money out of the healthcare sector at once.
But if the dollar and broad equities are falling, you can guess whose feeling the love right now right? Yes, our old pals in the precious metals complex are the belles of the ball at the moment with both GLD and SLV showing very encouraging daily patterns although both have long term hurdles to face.
First the more popular GLD where we’ve cleared the downtrend channel and are back above prior support. Can it stay there?
SLV has managed to clear the 50 day moving average since our last post with only prior resistance/support ahead of it and if the futures are any indication, it could clear that hurdle today.
Longer term both funds have issues; the long sell-off over the last year and a half has created all sorts of prior resistance/support levels to be aware of as any indication that our pals at the Federal Reserve are growing concerned about a weaker market could create a new wave of profit taking…or more to be more accurate locking in smaller losses for those long term holders (like yours truly.)
And with that, time for the Yinzer Analyst to get back to work. Keep your eyes on the Fed watchers this week for any hints that the Federales are thinking about jaw-boning “down” any potential talk about raising rates. It won’t be enough to spark a rally back above the old highs but at least it’ll help act as a brake to further drawdowns for the S&P 500.