While the casual observer might wonder why the Federal Reserve doesn’t see inflation investment, professionals are wondering why they aren’t worried about deflation.  Either way, everyone is worried about what the Fed sees and whether or not there up to the task.  Moreover, what’s most important is the goal of the monetary policy?

Asset Inflation

Vs.

Job Growth and Wage Inflation

What we are seeing right now, is the market throwing a temper-tantrum, trying to force Janet Yellen & Co to stay the course.  However, there’s no denying that the Fed pays attention and tries to placate Wall Street, underscored by that bizarre episode when Yellen called a top for biotechnology stocks, but hinting everything else was fairly priced.  She’s not trying to sell her Street cred that way anymore; instead, it will be her actions or inactions that determine her standing with the Street.

We need to root for her to stand up for Wall Street, as rates can’t be hiked based on the lackluster economic recovery.  It would just be a gesture of independence.  I think the hissy fit is unnecessary, as the Fed shouldn’t hike rates.  That said, there is an increase of fear measured by the volatility index   (VIX), which is not a bad thing.

The bull market must be tested from time to time, even if it means emotionally-driven declines and assumptions.  However, one thing must be pointed out; while the market is technically in its bull phase, more and more stocks have been run over.

Run over big time.

Yesterday, there were 8 new highs on  the NYSE and 354 new lows- shocking.  I continue to say that there are huge oversold stocks out there, but the nature of the market is oversold and it makes stocks more vulnerable rather than instant buys.

Buy Signal

So, what will be the buy signal?  First, the market has to avoid classic sell signals, including the Dow Jones Industrial Average and Dow Transportation names, re-testing the 52-week low.  These things are cute, but are not foolproof.  That said, with cheap fuel, there’s no way transportation should be this depressed.

Moreover, it’s not the time to panic.  For the most part, it’s too late to close a lot of positions, unless they are down less than 10% or irrevocably broken, fundamentally.

Please speak to your rep for more details, but don’t panic, as this move was overdue.  Investor success over the long haul means dealing with occasional stress.

Market Update

The market is set to open lower as confusion reigns coupled with frustration add a dollop of fear.   The Dow is well below key moving averages and yesterday the market closed below the psychological support point of 17,000.  That takes the index into a technical no-man’s land where the next key support point would be 16,117 and that would mean finally a correction.

This pressure has little to do with valuations although models have to be reexamined in a slower global economy.  China’s PMI data came in at a 77-month low reading of 47.1 which underscores the preemptive move to devalue their currency.  It’s not a war to harm America (unless you think cheaper TVs are painful) but a move to soften their slowing economy.

No panic but there is a giant question mark overhead.