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Stocks rallied at the open on Wednesday, sunk into the afternoon, then bounced back after the FOMC meeting and the release of the Fed's policy statement. The Dow gained 30-points on the day with moderate gains in the S&P 500 and Nasdaq, as well as the Transports, and the I-fund. The S-fund lagged slightly closing just slightly north of flat.
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There were no big surprises from the Fed and the market seemed to appreciate that. If there was one catalyst that gave the bulls some ammunition it was that the Fed said that they see no need to raise rates next year without some kind of spike in inflation, which is something we haven't seen in many years. This coming after that hot jobs report was interesting.
It was a green light for buying assets yesterday, so while we saw stocks move up, we also saw those safety trades of bonds and gold move up, although that may have more to do with the dollar falling sharply again, which may be on the brink of a breakdown, unless the sell-off was an overreaction?
Was this a similar reaction to what we saw after the strong jobs report? By that I mean, stocks rallied sharply on the jobs report, but have since given back some of those gains. So, was that drop in the dollar an overreaction, and with the I-fund on the cusp of a breakout, is it more likely to spur a breakout, or to hit that flat top and pull back again?
I bring that up because of the I-fund's heavy reliance on the direction of the dollar. I also wonder if the strength in bonds and gold will continue, the safety trades, while stocks are sitting near all-time highs.
The deadline for the new tariffs to be imposed is on Sunday, and that may be the reason why stocks didn't rally further on the Fed's dovishness.
The S&P 500 (C-fund) is just off recent highs and you have to wonder why, after one of the best jobs reports in months, and the Fed saying they are not planning on any rate hikes in 2020, the market isn't at an all-time high? Now the small bull flag on the chart may be indicating that new highs are coming soon, and that would make sense, but what would it take to get investors to buy more at this point? As I mentioned above, the tariff deadline on Sunday may be what is holding it back, and what happens if those tariffs are implemented?
The DWCPF (S-fund) is in a similar situation - just off the recent highs, a possible small bull flag forming below the recently broken rising trading channel.
The Dow Transportation Index had a strong day but it remains in a short-term downtrend since peaking about 5 -weeks ago.
The AGG (F-fund / bonds) rallied sharply on the Fed's policy statement that rate hikes are not likely in 2020. Technically, this chart looks positive, and if I had to guess I'd say testing the October highs is in the picture, but as we have seen before, you never know when things will shift here. Economic data, trade news, the dollar, etc., could turn this on a dime.
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