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Fed hike, stocks spike

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Stocks opened modestly higher on Wednesday and accelerated to the upside after the FOMC rate hike announcement. There was a slight dip into the close so the indices ended the day off their highs, but the Dow gained 113-points with larger percentage gains in the broader indices.

Daily TSP Funds Return

The Fed did indeed raise rates 25 basis points as expected, and forecasts another two rate hikes this year, and three more next year. That gave the bulls some optimism as far as the economy and inflation go, but of course things don't always go as planned so this is the bar for the economy and the stock market. Any deviations in the interim will probably cause some volatility.

One thing to keep in mind is that there can be reversals from big Fed triggered market moves in the coming days so it wouldn't be a surprise to see stocks stall or digest yesterday's gains, but it also depends on the underinvested. If the dip buyers are still out there, a pullback may not pan out. The market has had a habit of frustrating those waiting for a pullback this year.

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The SPY (S&P 500 / C-fund) followed through on Tuesday's positive reversal day with a little help from the Fed. The 20-day EMA has held again and as we've been saying, remaining above the 20-day EMA makes it tough to get too bearish unless you are trying to call a market top. That said, there is always the chance of profit taking after an emotional Fed triggered rally so we'll continue to watch those obvious support levels.

The DWCPF (S-fund) gained 1.33% on the day pushing off the 50-day EMA and back above the 20-day EMA for the first time in almost two weeks. Again, a bounce off the 50-day EMA is a good sign, but watch out for some possible profit taking and how the support levels handle it.

The Dow Transportation Index rallied over 1% after a breakdown below the 50-day EMA earlier in the week. You can see that the 50-day EMA held as resistance on this first attempt to get back above it. That's not a surprise, but if this is anymore than a dead-cat bounce, the 50-day would hold as resistance here. Otherwise, the bulls will take back control.

The price of oil gapped higher, and that was before the Fed policy statement so there was more to it than the Fed. The decline in the dollar was also an impact. It's back above the 200-day EMA and of course that is a big deal technically.

The EFA (I-fund) rallied hard with the help of the Fed and a sharp decline in the dollar yesterday. It pushed back to new highs and above that rising wedge formation. However, the test starts now since each prior break from that wedge turned out to be a fake-out.

The dollar tanked yesterday and that potentially creates a lower high for the UUP. It's not a trend yet but the formation is looking "toppy".

The AGG (bonds / F-fund) rallied strongly filling one of the two large open gaps. It would be quite a feat to fill that other (red) gap after the rapid decline in March, but if that happens the 200-day EMA would be pushing back again during this bear market in bonds.

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Thanks for reading. We'll see you back here tomorrow.

Tom Crowley

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The legal stuff: This information is for educational purposes only! This is not advice or a recommendation. We do not give investment advice. Do not act on this data. Do not buy, sell or trade the funds mentioned herein based on this information. We may trade these funds differently than discussed above. We use additional methods and strategies to determine fund positions.

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S&P 500 (C Fund)
DWCPF (S Fund)
Dow Jones U.S. Completion Total Stock Market Index (^DWCPF)
EFA (I Fund)
iShares MSCI EAFE Index (EFA)
AGG (F Fund)
iShares Lehman Aggregate Bond (AGG)