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Are Stocks Hinting At Bigger Problems?

The Fed Has Tried Both Sides

Last Thursday, the Federal Reserve did not raise interest rates. While the "no rate increase" scenario is typically favorable for stocks, the S&P 500 was unable to hold onto the post Fed statement gains. In fact, rather than rising after the Fed statement, the S&P 500 has seen a big drop in recent sessions (see chart below).

Stocks Fail to Cheer "No Rate Increase"


Let's See How The Other Side Looks

In what appears to be a bit of a panic response from the Fed, after Friday's big selloff in stocks, several Fed officials came forward making the case for increasing interest rates. Did the market cheer the Fed flip? No, the initial reaction was positive, but like last week, the gains were quickly given back (see below).

Stocks Fail to Cheer "We Need to Raise Rates"


How Does The Bigger Picture Look?

While markets can begin to improve at any time, the facts we have in hand are not particularly encouraging for stock market bulls. This week's video shows why stocks may be set up for another big leg down.


Have Things Improved This Week?

After Tuesday's session, the S&P 500 was down 15 points this week, meaning it is difficult for improvement to occur on weekly charts. If we use the image below to compare the end of the 2011 correction and the 2009 bear market low to the present day, we can see the stock market bulls have some work to do.

SPX 2009 and 2011 Lows

If you want to get some insight into the three "looks" above, see Comparing 2015 To Past Market Bottoms


Improvement Can Begin At Anytime

2011 is an excellent example of a vulnerable market that began to improve quickly after a low was made. The charts looked ugly on October 3, 2011, but improved dramatically in the weeks that followed the October 4 intraday reversal. With Janet Yellen speaking Thursday, it is important for us to monitor the charts with a flexible, unbiased, and open mind.

 

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