FED RAISES RATES AS EXPECTED -- MARKET ENJOYS SHORT-TERM OVERSOLD BOUNCE -- OIL STOCKS SLIP WHILE TRANSPORTS JUMP
DOW BOUNCES FROM OVERSOLD CONDITION ... The Dow Industrials gained well over a hundred points today after the Fed's expected decision to raise short-term rates another quarter point. The Fed's continued optimism about the pace of the economy may have encouraged some bottom-fishing. That and the fact that the market is in a short-term oversold condition. Chart 1 plots the 14-day RSI line under the Dow chart. The RSI line, which acts as an overbought-oversold oscillator, is bouncing off the 30 line which is traditionally viewed as oversold territory. The March and May bounces started from the same level. That leaves the door open for more short-term gains, but isn't in itself enough to change the direction of the major trend which is still down. Chart 1 also shows heavy oversold resistance near the 10,200 level -- if a bounce carries that far.
Chart 1
TRANSPORTS JUMP WHILE ENERGY SLIPS... The market remains hostage to the oil market, which closed slightly lower today after reaching a new high earlier in the day. One interesting market switch that took place today was a jump in energy-sensitive transportation stocks. At the same time, the energy sector lost ground. Chart 2 shows the Dow Transports bouncing sharply off their 200-day moving average. A 2.9% gain in the airlines helped a lot. Chart 3 shows the AMEX Energy Select SPDR meeting resistance near its 50-day moving average. This is the first sign of relative weakness in energy shares in awhile. If the market is expecting some weakness in crude, the transports would be one of the main beneficiaries.
Chart 2
Chart 3
HIGHER BOND YIELDS HELPS DOLLAR... The 10-year Treasury Note yield moved a little higher today, but remains below its 200-day average. Higher yields boosted the dollar and pushed gold $1.50 lower to $401. That caused some profit-taking in gold shares. Chart 5 shows the XAU Index having trouble staying over its 50-day average.
Chart 4
Chart 5
QQQ and SPY BOUNCE AS WELL ... Charts 6 and 7 show today's bounces in the Nasdaq 100 QQQ and the S&P 500 SPDR. In both cases, volume picked up from Monday but was still on the light side. Both are bouncing off their lower Bollinger Bands. If a short-term rally does follow, initial overhead resistance can be expected at their 20-day averages (see arrows) Our major directional indicators are also in oversold territory, but remain firmly in negative territory. The market will have to a lot more work on the upside to turn those negative trend indications around.
Chart 6
Chart 7
