A Critical Juncture

End of Day Update:

A tale of two markets; while the S&P500 ended flat, the NASDAQ and small-cap indexes cratered 1%. The divergence shows investors were pulling away from speculative technology and small-caps and moving that money into boring blue-chips. Similar to the phenomena we saw back in April. While one day doesn’t make a trend, it would be foolish not to take note.

Tuesday is the start of the Fed’s meeting and is a popular event for the market to speculate on, but while Fed meetings, notes, and press conferences generate lots of buzz in the financial press, they haven’t done much to change the mood of the market. Last year everyone dreaded the very mention of Taper, yet here we are, practically done with Taper and yet holding near record highs. So much for conventional wisdom. Outside of raising short-term interest rates to 5%, I doubt the Fed meeting will have a lasting impact on the market. Of course we should expect near-term volatility as traders impulsive react to a stray word or two.

The market is at an important turning point. What happens next could determine how we trade the rest of the year. While we are holding near record highs, we are seeing a slight roll off from the top. Quite bullishly, we haven’t seen recent dips under prior lows trigger waves of technical selling. This shows most of the people who fear weakness already sold this consolidation. Those that remain are demonstrating they don’t mind a dip here or there. As long as they remain confident and complacent, supply stay tight. But at the same time, we are rolling off in what could be a double-top or head-and-shoulders. One move, two legitimate interpretations. If this were easy, everyone would be rich.

We are a few points above the 50dma. Bulls need us to bounce over the next few points. Fail to hold the 50dma and it could be a very rough few weeks for the market as previously confident owners turn into nervous sellers. Trade accordingly.

Jani