On Wednesday the popular averages were moving sharply upward into the afternoon, then plopped to close well down after interest rates began rising following the release of the recent FOMC minutes. Those minutes indicated that the FOMC could get more aggressive in raising interest rate targets amid signs of a strong economy and price inflation.

   Used home sales slowed a bit in January. Markit’s manufacturing and services outlooks both continue pointing toward growth. Meanwhile the price of crude oil fell while that for gold rose on Wednesday.

   Above is my 3-month chart of the S&P 500 exchange traded fund (SPY). November began what is normally the market’s best performing grouping of six successive calendar months.

   The strong upward move of the SPY in 2017 with acceleration last month was due for a correction, and it was hit by one in early February. Apparently the expectations of volatility and rising long-term interest rates compelled some traders to sell. This got the snowball rolling with enough speed to grow into an avalanche.

   The economy is strong with no signs of a coming recession. However, inflation and interest rates have become concerns. The SPY sharply rebounded from its 200-day moving average on February 9, then continued upward every day last week. For the last few sessions it’s been fluctuating around its 50-day MA. Holding for a while near that level after a rise is not unusual. Nevertheless, the late drop through that level on Wednesday has turned me cautious.


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© Curt Renz

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August 16, 1994