Thursday was another day of indecision for the market, which struggled to hold into big gains once again. The last five trading sessions illustrated this worrisome pattern with a series of lower-session high points. Three of these sessions saw the intraday peak reached right at noon then the unraveling began. This suggests smart investors might be selling into rallies rather than buying dips.

This is also a learned behavior of an overly emotional market that has become like ‘Pavlov’s dog’ (conditioned to sell once intraday rallies stall), and it doesn’t take long for that selling to snowball as would-be buyers remain reluctant. The Dow Jones Industrial chart is compelling as you can see; a double bottom and even a reverse head and shoulders - both are bullish chart formations.

The Fed to the Rescue

Wall Street keeps blaming the Fed for recent weakness, which explains why its members have fought hard to promote calm this week.

Yesterday, two voting members of the Federal Open Market Committee (FOMC) got in on the act, and I think their comments helped.

Federal Reserve Governor Randal Quarles explicitly said he sees three gradual rate hikes handicapping a fourth hike at a 30% chance.

Raphael Bostic, Atlanta Fed President, put the need for rate hikes in the proper perspective:

After years of emergency-era monetary policy, the Fed is in an increasing-rate environment amid a carefully-calibrated return to more normal Fed footing.

Bostic went on to say that banks have anticipated the increase in rates and are really excited about the prospects of higher returns. 

The fact is everyone has anticipated the increase in rates and the reduction of the Fed’s balance sheet, but now is the moment of truth.

Feet of Clay versus Hands of Stone

Even before these gyrations morphed from hundred-point reversals on the Dow, to 500, to even one thousand-point move I told you this was a shakeout period.   The wilder the markets become, the more uncertainty grows, and even heretofore strong hands could wilt into feet of clay.

Stay focused on the fundamental underpinnings of the economy, which centers on the revival of big business investments and increased consumer spending. 

Speaking of which, restaurant stocks Bloomin’ Brands (BLMN) and the Cheesecake Factory were big winners, reflecting that extra cash that’s flowing from higher wages and lower taxes. 

Today’s Session

The major indices have started the day in the green, again.  Earnings from Hewlett Packard (HPE) lifted the stock over 10% and is taking tech with it.  While there is no economic news today, we will get comments from 4 fed presidents today: 

• New York Fed President William Dudley (permanent voter) 10:15 ET
• Boston Fed President Eric Rosengren (alternate voter) 10:15 ET 
• Cleveland Fed President Loretta Mester (FOMC voter) 1:30 ET
• San Francisco Fed President John Williams (FOMC voter) 3:40 ET