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Chaikin Stock Market Insights: Patience Is A Virtue, Especially In The Upcoming Fed Announcement

March 16, 2015

Weekly Stock Market Tips and Analysis by Marc Chaikin

Patience is a Virtue, Especially in the Upcoming Fed Announcement

The S&P 500 Index closed on Friday at 2,053.40, down 0.86% on the week. The small and mid-cap stocks were up on the week, indicating an appetite on the part of investors for the riskier segments of the market, and the ones with less exposure to the very strong U.S. dollar.

The market is focused on three things right now:

o The price of crude oil, which continues to drop

o The continued strength of the U.S. dollar

o The upcoming Federal Reserve Board Open Market Committee meeting and subsequent announcement

The Fed watchers will be looking to see if the word "patient" is dropped from the Fed announcement, which will signal an earlier rise in U.S. interest rates. As we have said before, this is meaningless speculation and would actually be bullish for financial stocks that benefit from gently rising interest rates. Ignore this guessing game but realize that volatility will pick up.

The price of West Texas Crude Oil (NYSE:WTI) dropped to a new 6 week low, but the market held together reasonably well, indicating a potential decoupling between crude prices and the stock market. The Baker Hughes drilling rig count continued its decline last week, but is now down 40% from its peak. This is a level that has indicated a possible low for crude prices. For that to happen, the vast build up in oil reserves here in the U.S. would have to stop, as this potential supply is weighing on crude prices.

Finally the U.S. dollar has skyrocketed over 20% and that has spooked investors as the specter of global deflation and the impact on U.S. multi-national company earnings have been raised as a cause for concern regarding U.S. equities.

Bond yields on U.S. 10 year treasuries have pulled back to 2.12% and that caused a rally in the beaten-down Utility stocks.

How Does the Market Look Technically?

The S&P 500 rallied off Wednesday's low of 2,040 but failed to penetrate resistance at 2,075-2,085. Friday's losses were pared in half, but the Index finished with a loss of .6% and was down for the 3rd week in a row. We are likely to see further selling early this week with strong support in the 2,000 - 2,025 area likely to contain any declines.

Use short-term weakness to buy strong Chaikin Power Gauge stocks in the Financial, Consumer Discretionary and Health Care stocks. A positive reaction to the Federal Reserve announcement on Wednesday might just get the stock market moving back above 2,100.

Use a close below 2,000, if it occurs, as an opportunity to get a bit more defensive in your trading and longer term portfolios.

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Themes: stock market , stocks , stock ideas