FED LEAVES RATES UNCHANGED -- BONDS AND STOCKS RALLY -- AMAT LEADS THE SOX TO A NEW BREAKOUT
FED STILL SEES RISK OF DEFLATION... The bond and stock markets seemed to like the Fed's statement today. It offered a balanced view of things without leaning too far in either direction. It repeated the theme that deflation remains a bigger threat than inflation. Bond traders liked that. And it gave a subdued though positive view of the economy, which stock traders liked. A number of positive technical features were seen in today's stock bounce. The Nasdaq market was back in a leadership role, which is always a positive sign. Today's bounce came on higher volume. And, at least for now, the Nasdaq (and the other major stock indexes) appear to have survived last week's test of their 50-day moving average lines. It's also encouraging to see the Nasdaq climb back over its (dashed) 20-day moving average. Daily MACD lines are still negative. But the more sensitive stochastic lines turned positive. The Semiconductor (SOX) Index gained more than 5% today to lead the technology rally.
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SOX HITS 52-WEEK HIGH... A sharp selloff in Asia last week pushed the SOX Index into a test of its (blue) 50-day average. Fortunately, it survived that test and more. In today's trading, the SOX gained 29 points to reach a new 52-week high. It got some aid from the Hong Kong market, which rallied 325 points in overnight trading. The standout stock in the SOX (and the entire tech sector) was Applied Materials.
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AMAT BREAKS OUT ON HEAVY VOLUME... Applied Materials was the biggest percentage gainer in the technology sector (and the SOX) today. The daily chart shows AMAT breaking through its recent peak to reach the highest level in a year. The green volume bar also reflects heavy buying pressure. That's a good technical combination. The weekly bar shows AMAT reaching the highest level in sixteen months. The ratio plotted under the weekly chart compares AMAT to the SOX. AMAT hasn't shown much upside leadership until the last month. Today's strong relative performance may be suggesting that AMAT is beginning to play a leadership role in the SOX.
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BONDS YIELDS DROP, THE DOLLAR BOUNCES, GOLD PULLS BACK... With bond prices rising, the 10-year T-note yield dropped below the 4.20% level. That's the lowest level in three weeks and is below the 50-day moving average. This is the first time in a while that bond and stock prices have risen together. The dollar bounced against the Euro, which pulled back a bit. The combination of a stronger dollar and stronger stocks caused a $4.70 pullback in gold. Gold stocks lost 2% today. Today's action doesn't erase our recent concerns about deterioration in some of our weekly stock market indicators. But it does appear that the market has survived the recent test of underlying support levels.
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