FED MOVE BOOSTS BONDS -- BUT MARKET AVERAGES DROP IN HEAVIER TRADING

THE FED DOES IT AGAIN ... The Fed raised the Fed funds rate another quarter point today. Although its wording showed little change from last month, it appears that the stock market was hoping for a sign that the Fed tightening cycle is nearing an end. When it didn't get it, the market sold off. If the Fed is trying to nudge long-term rates higher, it didn't do that either. Bond yields fell as bond prices rose. Chart 1 shows the 10-year T-note yield falling to 3.94%. While investors bought bonds, they sold stocks. And on rising volume.

Chart 1

DOW DIAMONDS DROP ON RISING VOLUME ... Earlier in the week I wrote about the negative volume pattern in the Dow Industrials. There aren't any signs of improvement. Chart 2 shows that the Dow Diamonds (DIA) sold off last week on noticeably heavier volume. This week's modest price bounce took place on lighter volume. Today's downturn took place on higher volume. That's not the way it's supposed to be in a healthy market. Price-wise, the DIA is meeting resistance just over the 104 level, which represents the broken support level formed in early June. The DIA is also trading back under its 50- and 200-day moving averages. The daily MACD lines, which turned down last week, are still negative. The recent poor price and volume action keeps the DIA on the defensive and raises the possibility of it moving closer to its April/May lows.

Chart 2

S&P 500 SPDR LOSES MOMENTUM ... Chart 3 shows that the S&P 500 SPDRs (SPY) ran into a wall at the March high near 122 last week and has been on the defensive since then. The 12-day Rate of Change (ROC) oscillator along the top has slipped under the zero line for the first time in two months. [The ROC compares the last price to the price twelve days ago]. An ROC drop beneath the zero line turns short-term momentum downward. Downside volume since mid-June has exceeded upside volume. It looks like the SPY is headed for a test of its (blue) 50-day moving average. If that doesn't hold, the next level of important support is its 200-day line.

Chart 3

NASDAQ 100 SHARES CLOSE UNDER 200-DAY LINE... The Nasdaq 100 Shares (QQQQ) are still trending lower after ending their spring rally at the mid-March peak near 38.44. Chart 4 shows that the QQQQ is testing its 50-day average after falling under its 200-day line. The fact that the 50-day line is still trading under the 200-day is another negative sign. Although today's downside volume was on the light side, the QQQQ shows the same negative volume pattern that shows up in the other major stock indexes. In other words, volume has shown a tendency to expand on down days and contract on up days. That's a sign that sellers are being more aggressive than buyers. The market will remain on the defensive until that situation reverses itself. The hourly bars in Chart 5 give a much closer look at this week's rally attempt in the QQQQ. It shows initial overhead resistance ranging from 37.22 (the June 15 low) to 37.26 ((this Wednesday's high). Any upside turnaround from current levels in the QQQQ would have to start by clearing this week's high at 37.26.

Chart 4

Chart 5