17 Minute Read

Market Recap April 27, 2016 – FOMC SPECIAL!!!

April 27, 2016

By | 3 Comments

MARKET SNAPSHOT
Dow18070.41+80.09(0.45%)
Nasdaq4866.88-21.43(-0.44%)
SP 5002098.63+6.93(0.33%)
10-yr Note+19/321.863
NYSEAdv 2158Dec 853Vol 699.85 mln
NasdaqAdv 1537Dec 1250Vol 1159.43 mln

 

IN THE NEWS HIGHLIGHTS:

  • FOMC strikes dovish tone in April Policy Statement.
  • Apple (AAPL) misses on earnings.
  • Oil vacillates initially after EIA data and then gained throughout the day
  • Technology weighs.

 

RECAP– The market had a rare overnight gap after major companies such Apple and Chipotle missed on earnings and continued to sell off after the opening bell with tech and biotech weighing it down. The energy sector gave it a boost after oil initially sold off following the crude inventories report only to rally throughout the rest of the day. The market continued to rally after the release of the FOMC Statement and the FED’s continued dovish tone.

In-depth look of daily news at Briefing.com (CLICK HERE)

In-depth look at after hours movers (CLICK HERE)


Economic Calendar

Today

  • EIA Petroleum Status Report/Crude Inventories: Actual – 2.0M   Forecast – 1.4M   Previous – 2.1M
    • Measures the change in supply of crude oil which has a significant effect on the price of crude oil and at times has a correlative effect to the S&P. Today’s supply numbers came above expectations causing the price of oil to drop sharply and give up much of its overnight gains.
  • Federal Funds Rate: Actual – 0.50%   Forecast – 0.50%  Previous – 0.50%
    • Interest rate at which depository institutions lend balances held at the Federal Reserve to other depository institutions overnight.


Upcoming Reports

  • April 27: Monetary Policy Statement from the Bank of Japan (Might as well put this in bold as well since the Japanese central bankers do tend to surprise, and shock, the world with their monetary policy. The most aggressive of Central Banks, they have in the past announced massive levels of Quantitative Easing without notice and most recently have been the first central bank to announce negative rates. With the BoJ, you could always expect the unexpected.)
  • April 28: Advance GDP q/q (A first estimate of quarterly GDP growth. Even though it is an estimate and will likely be revised, the Advanced figure tends to have the greatest impact in the market).
  • April 28: Unemployment claims
  • April 29: No major events

 

FedWatch June 15 Rate Hike Probability for April 27: 18.8% (View the probability chart here)


A Look At The S&P 500 Chart – KEY Levels

  • Short term Support above 2070. The next level of support is at the 2040 range and then critical support is located between 2000-2005 .
  • Resistance at current levels up to 2105.
  • Average daily volume.
  • Traded in a very tight range today.
  • RSI above 50.
  • On Balance Volume is above its moving average.

 


A Look Into the Heat Map

 

Strength being shown through much of the market. Clearly, a poor earnings report from Apple and laggards in tech and biotech weighed the market down which could have been very, very bullish following a dovish FOMC Statement.

MARKETS

(click on symbol for chart)
SPX –  Bull
DOW Bull
Nasdaq Bull
Russell  Bull

VIX – 13.77 – Bear

 COMMODITIES

Oil (USO) –  Bull (EIA Petroleum Report/Crude Inventories came out today causing oil to sell off and give up it’s overnight gains before rallying back within 30 minutes and continuing to rally following the release of the FOMC Statement.)
Ag (DBA) – Bear
GLD –  Bull
SLV –  Bull

THE DOLLAR

UUP USD weighted ETF – Bear (The Dollar Index, /DX, has been in a strong bearish slump since the beginning of December. Now the chart is forming a low base at a historic support level of 94 that it has rarely traded under for the past year and a half. Dollar initially showed strength following the FOMC Statement but came back down into its prior levels.)

 


Highlights of the FOMC Statement

“Information received since the Federal Open Market Committee met in March indicates that labor market conditions have improved further even as growth in economic activity appears to have slowed. Growth in household spending has moderated, although households’ real income has risen at a solid rate and consumer sentiment remains high. Since the beginning of the year, the housing sector has improved further but business fixed investment and net exports have been soft. A range of recent indicators, including strong job gains, points to additional strengthening of the labor market. Inflation has continued to run below the Committee’s 2 percent longer-run objective, partly reflecting earlier declines in energy prices and falling prices of non-energy imports. Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations are little changed, on balance, in recent months…

…The Committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run. However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data.”

For the Complete Statement CLICK HERE

ANALYSIS: There is very little in the FOMC Statement that we don’t already know if we follow the Economic Calendar and Forex Factory on a daily basis. The labor market is showing strength as we have been seeing unemployment claims remain relatively low for a prolonged period of time and total unemployment is dropping. If you look in the numbers provided by the Bureau of Labor Statistics (BLS), last months increase in the unemployment percentage was actually due to an increase in the number of people getting back into the work force (nearly 400K in addition the 555K increase the previous month) leading to an increase of the Labor Participation Rate to 63.0% after hitting rock bottom last September at 62.4%. With jobs being consistently created, people getting back into the work force, and inflation remaining steady (despite a historic collapse in commodities) the only data point that the FED has been missing (and bemoaning) is Wage Growth (wage inflation). The FED isn’t going to be too worried though as wage growth is a lagging indicator that usually follows when the job market solidifies and employers have to compete for quality employees by offering more competitive wages. Plus, wage inflation is also being legislated in as the “Fight for $15”  movement has already seen many major cities and states raise their minimum wages (which should also lead to wages rising across the board). The bottom line is that we already expected an optimistic statement, but I am somewhat surprised of how Dovish the tone remained. Being dovish is nothing new from this FOMC Commitee, but I half expected a subtle shift  in tone to possibly hint at a rate rise in June. Current projections show an 18.8% chance of a rate hike then, which makes the upcoming labor statistics and May’s FOMC Meeting Minutes vital. 


SOLON’S TRADING THOUGHTS

The FOMC statement has come and gone. Earnings are still underway. Even thought the market only moved 0.33% for a total of 7 points, today felt a lot more bullish than the numbers indicate. The FOMC is still dovish and not hinting of any rate rise, oil is continuing its seasonal bullish run, and the dollar is continuing to flounder at historic support, failing to recapture its prior strength. The market is holding surprisingly strong despite a poor earnings season for much of the S&P 500 stocks. At this point, there is nothing that we are aware of looming overhead, so you may feel free to return to your trading without distraction.


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3 Replies to “Market Recap April 27, 2016 – FOMC SPECIAL!!!”

  1. Avatar BradSmith says:

    thanks for the nice detailed report Solon

  2. Nicholas Kingsbury Nicholas Kingsbury says:

    Great Recap. Like your style.

  3. Avatar ERICSIMMS says:

    Many thanks, Solon. I listened to the FOMC meeting and was surprised by the first reporter to ask questions nailed her with a credibility question regarding her dovish remarks followed by the statement that the Fed would hold and possibly go to zero interest rates if needed. He directly challenged the credibility of the Fed statements, very interesting tension there. He asked her point blank, how much better does the economic data have to be for the Fed to follow it’s prescribed normalization course? She tap danced around that question, but gave a lengthy answer that amounted to keeping a flexible posture, nimble to all conditions. Meaning, even negative interest rates aren’t out of the question if it shows merit in the performance of Japanese and European markets. The Japanese Central Bank sure upset the apple cart by not offering as much additional monentary policy movement as expected . . . wow, midnight blitz on the Forex and US market indexes.

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