By Ryan Gorman, CFA, CMT, BFA
1/ A Pop
2/ A Flop
3/ A Look at Rates
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1/ A Pop
Market action on Wednesday was driven by some large tech earnings (think GOOGL and AMD) and later a fed that does not look eager to cut rates in March. However, QCOM bucked that trend, closing up over 1%.
After a failed breakout in December, there was a solid breakout in January that has tested support along with the 20-day moving average. Elder bar is still blue, but after hours the stock was up another 2%. If that carries over, I would expect this to change.
After being largely range bound all 2023, something changed with the Pring special K indicator. This is a very long-term momentum indicator that in this case broke the downtrend and offered some favorable evidence that an upside breakout could occur.
Read more here: Martin Pring’s Special K [ChartSchool] (stockcharts.com)
2/ A Flop
After a few regional banks failed last March, the Federal Reserve set up a facility to shore up liquidity. Many regional banks have gone to previous and even new highs. One that struggled today was New York Community Bancorp. They announced an unexpected loss on an increase to loan loss provisions up to $550 or so million. About 10 times what the street was expecting, they even cut their dividend. This caused a quick move back to the March lows.
After a strong recovery from the March low, the Special K broke its downtrend. Largely NYCB remained stagnant until today. No indicator is perfect, investing and trading is a lot about probabilities. Whatever your investment philosophy, Trend, Value, etc, it pays to stick to your rules. Even if a stock you don’t own goes up, better to be consistent.
3/ A Look at Rates
The federal reserve held the Fed Funds rate steady today between 5.25-5.5%. The longer part of the curve remains below this, a so call inverted yield curve. In fact the 10 year went back under 4% today.
Historically the yield curve has been a solid predictor of recessions. Something has to get the short end back below the long end. Much of the rally in stocks could be attributed to Powell’s speech in fall where he indicated hiking was done and the next move was likely a cut. The fed’s internal forecast was for 3 cuts. There is no rule on the magnitude, but it is often in 0.25% increments, so 0.75%.
The momentum seems to still favor a rally in longer term bonds. When bond prices rise, yields fall. The market continues to believe the fed may be forced more aggressively.
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Originally posted 1st February 2024
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