The bears made some noise yesterday after hearing the Fed turned its back on the bulls with the release of the latest FOMC minutes. Ben Bernanke provided some enthusiasm last Monday when Wall Street took some of his words as though there would be one last round of quantitative easing (QE) but yesterday, the Fed said it was “less inclined” to do so.
A “couple” of the Fed members thought more QE might be needed if the economic recovery loses momentum and in January, the minutes said the same thing. However, January’s minutes said there were a “few” committee members who would be in favor of further easing, if needed.
The market was already in the red by the time the Fed announcement came out but worsened after traders headed for the exits.
The Dow fell 65 points, or 0.5%, to close at 13,199. The blue-chips finished just below 13,200 and traded down to 13,131.
The S&P 500 dropped a six-pack, or 0.4%, to settle at 1,413. The index traded to a low of 1,404 and was able to hold the 1,400 level but failed to break into positive territory after two attempts in the morning.
The Nasdaq gave back the other 6-pack, or 0.2%, to end at 3,113. Tech managed to see a little green, hitting 3,128 shortly after the open but tested a low of 3,097.
Despite the weakness, the S&P Volatility Index (^VIX, 15.66, up 0.02) was only up fractionally but did trade up to 16.65. We gave specific targets to watch for as far as confirmation on a breakdown in our Weekly Wrap and Monday Morning Outlook but we aren’t there, yet. Also, the trend is still up the indexes but we gave specific targets to watch for as well on when a trend change could occur.
Timing a market bottom or pullback is never easy so the trick is to build positions slowly. We have started adding put options to our portfolio with longer-dated options and we have a number of trades that look juicy on our Watch List. We aren’t sure when the fat lady will sing but the bulls bus is warming up.
Futures are showing a nasty open as we head to press and look like this: Dow (-110); S&P 500 (-12); Nasdaq 100 (-20).
Our current put option trades got some nice pin action yesterday and we have set HARD STOPS on a few of them to protect profits. We may also release a NEW TRADE from our Watch List if we like the prices so stay locked-and-loaded. Subscribers, check the Members Area for the updates.