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FED Powell Signal, Rates at Neutral, Institutions Respond With Accumulation

Institutions responded to FED Powell’s comments with accumulation, as the number of stocks moving higher on above-average volume surged Wednesday. The MarketSmith tab below flipped to accumulation as well. This barometer has been decidedly bearish over the past couple of weeks.



MarketSmith Stocks Up Volume 11292018


NYAD Advance Decline – Accumulation Day

NYSE narrowly missed finishing as a Major Accumulation Day closing at +8.54:1 with a +9:1 needed to qualify. In my estimation, Wednesday price action should be considered a major accumulation day, as many indicators flipped. TICK 60-minute cumulative measurement also closed bullish for the 4th session, signaling institutions were buying significantly more than they are selling short-term.

SPX Accumulation

While the S&P 500 big caps did see accumulation, we’d like to see S&P 400 midcaps and S&P 600 small caps acknowledge more accumulation. If these two segments of the market improve, we would check another box for the continuation camp. In other words, S&P 500 isn’t out of the woods yet. Bulls have the 200d just overhead.

SPX 60 minute targets are delineated on the MarketSmith chart below. We anticipate rejection initially at these areas and follow through if Wednesday accumulation was the first foray into higher levels.


SPX 60 Min targets


The Wednesday rally on Wall Street recorded the benchmark’s best one day return since the end of March.  Following comments from Jerome Powell, the S&P 500 index added 2.3%. The FED indicated that rates were just below levels that the Fed considers to be neutral, implying a more dovish stance as it pertains to future rate hikes.

The comments acted as the catalyst to fuel a breakout and institutional accumulation in large-cap stocks, as price action moved back above the open gap that spanned between 2685 and 2700.

A double-bottom pattern is apparent on the chart above around 2630, a bullish setup that would be fulfilled by a break above the November high at 2815 (red lines). Momentum indicators are showing positive divergences, which suggests waning selling pressures. This is a bullish setup short-term.

Reaction to the levels depicted on the chart above will be critical to determine if this move has legs as investors cover negative bets ahead of the end of the year, or whether this move is merely a bull trap.

Macro Issues

The U.S. Dollar sold on FED Powell comments. 10-year yields moderated Wednesday, fading a bit further this morning at 3.01 (+/-) -0.16%. TLT 20 year bond was lower, as it was rejected at resistance prior to the weekend on Friday. Junk bonds bounced. Gold was higher.

Bottom line, we are still on the fence this morning. Therefore, we will watch closely for buyers on any intraday dips (60 minute).

Look for the watchlist setups to outperform if the markets continue higher today. All of the setups therein were showing relative strength prior to the Wednesday rally.

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Happy Trading,


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