Yesterday afternoon, the Federal Reserve did its best to walk a fine line between appearing overconfident about the economy, unconfident about the company, realistic, and unanimous. It was a near impossible task but they pulled it off fairly well judging by the market’s reaction. Basically, they took a baby step upon expressing some worry about the sputtering recovery. After issuing a near identical statement to the last one, two notable differences occurred at the end of said statement. First, the Fed noted that economic growth will likely be “more modest” than it thought even two months ago. Even more notably, the Fed indicated that it could use money from its investments in mortgage securities to buy government debt to a small degree. Ostensibly, this could force down rates on mortgages and corporate debt even lower as yet more money would be poured into bonds. But the gesture is basically a symbolic one if not an important one as the amounts in question are seemingly too small to truly impact credit conditions particularly when bond yields hover at historically low levels. However, it is still of note for one positive and one negative reason. The positive is that the impact of any relative immediate-term Fed move will be known because all one has to do is glance at its balance sheet to see if it is in an easing or tightening mode. The negative though is a dangerous one. Not only is the Fed playing out the same theme of maintaining its strategy of keeping rates low in the hopes of spurring growth it runs the risk of appearing dinosaurish should the economy not pick up. Also, the reality is that new growth is not being spurred; rather people like myself are taking advantage of the low rates to refinance their mortgages rather than buying new houses. Finally, it is debt upon debt in that the monetization of the continuing hefty deficits create an image of a willingness to take on even more debt. The markets have been factoring in some sort of Fed move for a few weeks now which has played a role in the recent rally. The fact that the markets traded lower yesterday but bounced on this announcement actually is immediate-term bullish as this was an indication of the Fed showing a willingness to react if necessary- but not doing so now. Perhaps all of this is a long-term negative, but was an immediate-term positive as confidence is the backbone of any market is the Fed which is certainly trying to keep things stable while not throwing a scare into the mix. Thus, the Dow wiped out a loss of 150 points before settling back a bit as the afternoon progressed. The truest indications of the Fed’s actions over the coming days and weeks will be the performance of the bonds, gold, and dollar…all of these indicators will likely play a very significant role on a macro much less intra-day scale for quite some time particularly if the moves in any or all of those markets becomes exaggerated- as has occurred already this morning.
Markets overnight were hit very hard with Hong Kong down 0.8%, but Tokyo fell 2.7%. In Europe, the story was no different as the bourses are all down 1.5% to 2% as of this writing. The yen continued to strengthen with the dollar falling below 85 yen but rising sharply against the euro. Gold is up slightly but oil is down well over 1%. 10-year yields continue to plunge. Futures are down sharply as the reality of what occurred yesterday is beginning to sink in. Trading today will be volatile and illiquid- and likely remain to the down-side. Use the dollar as a decent indicator for what will happen today. Focus on big caps, the limited earnings flow, and the solars.
Reiterating-
If the whole story is not there -
If something is good, assume either a short thru unchanged or an A-B-A2 (preferably to the downside in a downside market and the upside in an upside market) based on direction of the market unless specified.
If something is bad, assume either a buy thru unchanged or an A-B-A2 (preferably to the downside in a downside market and the upside in an upside market) based on direction of the market unless specified-
Good- The following stocks have good news and/or a strong technical pattern
DIS- decent earnings
LDK- good earnings
JAZZ- good earnings
SPWRA- decent earnings
HMIN- good earnings
AMZN- closed on a high
NFLX- closed near a high after a positive mention on “Mad Money” and upon signing a deal
ZSTN- closed near a high after posting earnings
AEM, CHK, AKAM- featured on “Mad Money” last night
AVT- decent earnings
M- decent earnings
Bad-The following stocks have bad news and/or a weak technical pattern
CREE- terrible earnings
AONE- poor earnings
MYGN- poor earnings
MR- closed near a low after posting earnings
AMED- closed near a low
MDCI- closed near a low
PMC- closed near a low
ADY- closed near a low
PEGA- closed near a low after posting earnings
JAG- closed near a low after posting earnings
APC- closed near a low
MITL- closed near a low after posting earnings
HQS- closed near a low after pricing a share offering
Earnings:
WED AUG 11 BEFORE
AVT CSC EJ
M
WED AUG 11 AFTER
AAP ANW CSCO
Epiphany Trading, LLC
www.epiphanytrading.com
Erik R. Kolodny- Chief Markets Strategist
Brendan P. Byrne- President
Joseph R. McCandless- Managing Partner
D. Timothy Seaquist- Managing Partner
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