The Fed’s FUD (Fear, Uncertainty, Doubt)

We will be watching how the Fed continues to manage the treasury market. In the meantime, the lack of action from the Fed has proven to be detrimental to a recovering market, with no changes creating fear, uncertainty, and doubt across every asset class. The flattening yield curve needs to be monitored (watch for inversion) as it has been a reliable economic indicator for market selloffs.

This week’s market highlights:

  • 3 of the 4 key US equity benchmarks weakened to warning phases with some of the weakest TSI readings (Trend Strength Indicators) in months [QQQ’s are the exception].
  • Our Real Motion indicator shows a constant decline in momentum across all 4 key equity benchmarks
  • Risk Gauges remain neutral with a slight improvement despite the sell-off
  • Volume patterns across the key indices continue to stay weak
  • Volatility (VXX) bounced off recent lows, corresponding to sell-off in the key equity indexes
  • The number of stocks above the 10-dma is showing the beginning of oversold readings for both the S&P 500 (SPY) and the Russell 2000 (IWM)
  • All commodities got hit hard, including softs, industrial metals and precious metals
  • The one exception in terms of commodity prices is Crude Oil (USO) closed positive on the week
  • McClellan Oscillator tanked for SPY and is in a strong risk-off mode
  • Interest rates (TLT) dropped sharply, confirming TLT’s breakout from a multi-month base
  • High-yield debt (HYG) continued to underperform vs TLT
  • Although a bit early to tell, watch for a possible recession signaled by flattening of Yield Curve as short-term rates rose this week while long term bonds rates fell
  • Value stocks (VTV) have broken down and gone into a warning phase, while Growth stocks (VUG) moved up to new all-time highs and resisted the sharp sell-off, and still not overbought
  • 4 of the 6 members of the Modern Family have moved into a warning phase, a clear risk-off indicator
  • Semiconductors (SMH) are in a long-term compression formation and still in a bullish market phase
  • Solar Energy (TAN) led all sectors this week, with a 5-day increase of 3.32% while nearly every other sector was negative
  • The US Dollar (UUP) rallied sharply, but on the weekly charts remains in a bearish stack
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