MARKET ATTEMPTS OVERSOLD BOUNCE -- NASDAQ STILL HOLDING OVER 200-DAY AVERAGE -- SMALL CAPS AND BANKS ALSO BOUNCE OFF SUPPORT
LONG-TERM RATES MOVE HIGHER... The Fed did pretty much what everyone expected it to do today. It left rates unchanged but made it clear that short-term rates were eventually headed higher. Of course, everyone knows that already. That's why the 10-year T-note yield has been rising since mid-March and rose again today. There were some other interesting cross-currents however. The U.S. Dollar fell today and continues to meet with resistance at its 200-day moving average. That gave a $4.30 boost to gold and moved bullion back over its spring low at $390. Gold shares jumped 5% and were the market's strongest group. Material stocks also gained today on the Fed's failure to act. The market itself attempted an oversold bounce from some important support levels. In my view, the most important test is taking place in the Nasdaq market.
Chart 1
NASDAQ STILL TESTING 200-DAY AVERAGE... Since the start of the year, the technology-dominated Nasdaq market has been the weakest of the major indexes. That is negative for the market -- if it continues. That's why the current test of its 200-day moving average is so important. The Nasdaq bounced off that long-term support line during March and prevented a bigger selloff. Chart 2 shows it closing just over that line today. The bounce wasn't all that impressive and came on lighter volume. But at least it held. The daily stochastics line also show the Nasdaq to be in a short-term oversold condition. The 50-day average sits near 2000.
Chart 2
SMALL CAPS TEST MARCH LOW... The Nasdaq isn't the only index testing an important support level. The Russell 2000 Small Cap Index is attempting a bounce off its March low. Small caps were hit hard over the last couple of weeks. The RUT, however, is still below its 50-day moving average which is declining. The testing process continues.
Chart 3
BANKS BOUNCE OFF 200-DAY LINE... Bank stocks have been one of the hardest hit groups because they're especially sensitive to rising interest rates. The good news is that the Bank Index is in oversold territory near its 200-day average and is starting to bounce. That's also encouraging if it is able to continue. Overhead resistance starts in the 98-99 region.
Chart 4
THE MARKET'S ENTITLED TO A BOUNCE... Not a lot has changed over the last two days. The market has been deteriorating since the start of the year on expectations for rising interest rates. Sector rotations seem to confirm that market view. Over the last week, however, several key market averages reached support levels in an oversold condition. A bounce from there can be expected. The question is how much of a bounce. Over the last two days, volume has been relatively light and the price gains haven't been that impressive. Most of the averages are also trading well beneath declining 50-day moving averages. It's always nice to see the market bounce. I'm skeptical, however, as to how far the bounce will get.
