Daily Market Update – May 21, 2014 (Close)
It seems as if we had an FOMC Statement just yesterday, but this afternoon was the scheduled release of the latest iteration.
While there weren’t too many expectations for any substantive kind of change in language, tone or intent, you never know how the market interprets status quo, much less change, so anything is always possible.
In addition to the immediate, knee jerk reactions to the minutes as the words are flash parsed by algorithms that scan the printed text, there is always the next wave or reaction minutes later as well as the following day for some more rational, or less rational thought to take hold.
Yesterday was an interesting day as it was really the first time that there was some widespread concern about retail sales despite having had at least 6 months of warning signs that the economy wasn’t reflecting some of that good news coming from the Jobs Numbers and Employment Situation Reports.
That disconnect seemed so obvious yet had been completely ignored. You would expect that increased employment would lead to increased discretionary spending at all levels of the chain. It just seems incongruous that only the higher levels of the retail chain seem to be thriving in what is thought to be an improving environment. Today’s earnings report from Tiffanys just adds to that observation that something is amiss.
That realization was poorly timed because it took one of our Tuesdays, which invariably see the market go higher and just wasted it on all of the concerns about the economy not reflected consumer optimism and more importantly, consumer spending.
Following yesterday’s triple digit loss it wasn’t too terribly surprising to see some early bounce back prior to the opening bell, but what was surprising was to see that early advance just continue to strengthen through the day and leading up to the 2 PM release of the FOMC statement. While I thought that any advance wasn’t likely to be sustained and especially unlikely to be potent the market is always full of surprises. Usually FOMC days tend to have tentative trading leading up to the report, but not today.
Additionally, there was almost no reaction to the release. Certainly not an immediate one, although about 6 minutes later the market did add on to its already substantial gains that offset Tuesday’s losses.
As with recent past weeks with Wednesday rolling around my thoughts were turned toward possible rollovers, which were definitely in short supply the past week. However, as opposed to last week, unless there is some real surprise in today’s FOMC, there isn’t too much reason to suspect a repeat of the deterioration seen during the latter half of last week that took so many positions out of contention for rollovers.
With the market now within even more easy striking distance of another new high and seeing how often it has shown resilience, it’s noteworthy how nervous traders appear to be. The immediate historical precedence would have you being optimistic for another scaling of the wall and overcoming any short term selling pressure.
However, the best reason those nerves is the breakdown of the high momentum names, as that has its own historical precedence. That history is one that has been tied to leading to an overall market decline.
That can’t be lost on some traders, especially the ones that have been around for a while and have been in up and down markets.
Not that there is any parallel, but we are now in that same period as between 1982 and 1987.
During that time the market just went straight higher and many drawn into the market, but as investors and brokers, had no idea that markets could go down, after a 5 year run.
Well, now its 2009 to 2014. That same 5 year run and there is a generation that may be unaware that the downside even exists.
On a positive note when so many start talking about the downside, the risk and the disappointments it becomes a less likely scenario. It’s almost always when you don’t see it coming that it happens, so I hope those warnings keep coming and caution becomes more the norm.