Yesterday, the market rallied into the Federal Open Market Committee (FOMC) decision and Powell’s question-and-answer period was determined to keep the rally going. Gripped with anticipation, the market reacted more to the Fed, going back to being data-dependent while ignoring the tough-sounding Fed chairman.

I think his stance came across like that famous scene in the movie “Stir Crazy” where Richard Pryor and Gene Wilder proclaimed, “Yeah that’s right, we bad.” But then, everything popped even though Powell left aggressive rate hikes on the table.

• Nasdaq Composite (Comp) +4.06%
• SPDR S&P 500 (SPY) +2.62%
• Russell 2000 (RUT) +2.39%
• Dow Jones Industrial (DJI) +1.37%
• West Texas Intermediate (WTI) +2.4%
• U.S. Dollar (USDXY) -0.69%
• Bitcoin (BTC )+7.22%
• Ethereum (ETH) +12.30%
• Nasdaq-100 (NDX) +4.26%

Breadth

Market breadth was strong but not quiet at that 85% positive session that has been a great signal for a longer term rebound. There were still more new lows than highs and the overall volume was light.

Market Breadth	NYSE	NASDAQ
Advancers	2,679	3,464
Decliners	551	1,104
New Highs	33	58
New Lows	45	144
Up Volume	3.56 billion	3.73 billion
Down Volume	594.90 million	797.43 million

Heat Map

All eleven sectors were higher, led by Technology (XLK) which saw its solar components at the top of the list after amazing earnings results from Enphase Energy (ENPH). After the close, Senator Manchin signaled that he was ready to do a reconciliation that would shower tens of billions on the solar industry.

Communication Services (XLC) enjoyed a much-needed strong showing, but these names are still mired in deep downtrends and uncertainty.

Launching Pad?  Key Charts to Watch

Nobody wants to say it out loud, but there are a number of signs there could be a more substantial move higher from here. 

The S&P 500 closed a large gap, and if it doesn’t reverse course to test a recent low, it could be off to the races, although the real upside hurdle is to clear 4,200 on a closing basis.

VIX

The CBOE Volatility Index (VIX) is back at the trendline. The inability to hold could mean a sub-20 VIX, and that would certainly add a pop to the equity market.

Russell 2000

The small caps have been coming on strong, with the Russell 2000 recently closing above the trendline (see arrow) and now picking up momentum.

The iShares Russell 2000 ETF (IWM) sees room to 193.00 from here, then 202.5 ,which covers a lot of ground.

Ten-Year Bond Yield

The ten-year yield collapsed and is now at a very pivotal support point. So, you could argue the chart is a classic head-and-shoulders formation, which is normally bearish.

We could be looking at the yield slipping all the way back to 2.40%.

Portfolio Approach

There are no sector weighting changes in our Hotline Model Portfolio this am.

Today’s Session

The initial GDP release for the second quarter sees economic contraction.  GDP -0.9% makes it back-to-back quarters of negative growth.

This report is especially worrisome considering the source of weakness.

• Personal consumption lower on sharp decline in goods -4.4%
• Domestic investment -13.5% led by -14.0% plunge in residential investment
• Note: inventories responsible -1.96 points of overall decline
• Note: exports minus imports added 1.43 percentage points

2022 GDP	1Q	2Q
GDP	-1.6%	-0.9
Personal Consumption Expenditures	1.8	1.0
Domestic Investment	5.0	-13.5
Exports	-4.8	18.0
Government Spending	-2.9	-1.9

This news takes the heat off a 75-bps rate hike in September.

A guarded reaction in the stock market, as bond yields continue to plunge.

Comments

We Bad....We're Nationwide. ZZ Top Charles Haselberger on 7/28/2022 10:16:45 AM

Yes, but does she have legs yet? Me bad too..... Bob Cayia on 7/28/2022 11:32:14 AM

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