Stock Market Indexes Suffer Another Distribution Day, As The Fed Pauses For The First Time In Two Years.

An early boring market soon gave way to some wild action that eventually took the indexes down on higher volume. A selloff on higher volume, after the Fed made their announcement and kept the book open for more possible rate hikes, is not the action that investors were expecting coming off of this pause. This gave the market its third day of losses in a row.

The SP 600 led to the downside with a .9% loss, the Nasdaq fell .6%, the Dow Jones Industrial Average fell .4%, and the SP 500 fell .3%.

Volume picked up across the board by quite a lot, coming off the low volume session yesterday. This gave both the NYSE and the Nasdaq another distribution day. This is the Nasdaq's fifth distribution day since the rally attempt 16 days ago got started. The volume on the NYSE was below the 50 day volume average so that gives some comfort to the bulls.

Breadth was negative on the NYSE by a 9-to-7 margin and was negative on the Nasdaq by a 2-to-1 margin.

You would have thought that by pausing at 5.25% that the market would have rallied. But that is what everyone was expecting and when everyone expects the same thing the opposite happens. Today's pause was the first pause in two years since the hikes started. 17 hikes later we are done, for now!

Why do I say for now? Because the Fed did not sing the song that Wall Street wanted. The Fed not only acknowledged that inflation is still a concern but they also said that the economy is slowing.

Uh oh! That only means one thing. Stagflation. I don't want to get too pessimistic but when I see the Transport Index breakdown, the Utility Index make new highs along with Consumer Staples then I have to assume the market really is in trouble. This only helps explain why with all of this the CRB remains strong. Stagflation. The markets haven't seen that since the 1970's and for everyone sake we better hope that is not what happens to this economy. There is nothing worse than stagflation.

So where are we now? We are going on day 17 of the attempted rally and still waiting for a signal to get back into the market. However, I doubt we are going to get that. Since the attempted rally started we have seen virtually NO accumulation days, seen four to five distribution days on the NYSE and Nasdaq, and have no leaders in growth stocks breaking out but have a lot of defensive sectors making new highs.

The IBD Defensive Index also hit a new high today with the market falling. Food, Beverage, Medical, Small Banks, Consumer Staples, Utilities, and Telecommunication stocks do not lead in bull markets. They lead in bear markets. What kind of market are we in? What has been the trend since May?

A couple of key technical situations have happened on the indexes that I feel need a quick discussion. The wedging pattern the past three weeks on the Nasdaq has been broken to the downside, confirming the distribution days that the path of least resistance is still down. The SP 500 is at key support on the 200 dma. If it cracks here that will be bearish and will also give the indexes chart the appearance of a clear rollover.

I have a lot of shorts but have locked in gains on the longer term ones and the new shorts are not big positions as the market is obviously weak to a lot of people. If we get an extremely bullish reversal I won't be hit too hard. Even with a lot of shorts I don't have a lot of shares in all of them. If the market does turn I will have enough time to cover without much happening that will hurt me too much.

Plus if that happens I am long some pretty green charts and any rally here will only help these charts. All that green in a red market can only be good for the stock when the market does turn. And then if the turn is real I will have plenty of time to put all that cash on the sidelines and the cash from covering the shorts to work.

With that I hope you have a great day tomorrow and I will see you at Investors Paradise.



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