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Vol Market Update

 

Just Interest Rates

Until last Wednesday, the S&P 500 Index appeared headed higher after finding support at the 50-day Moving Average in the middle of a range that looked tempting enough to sell some Iron Condors. However, that all changed Thursday after Jerome Powell's comments at the International Monetary Fund saying he saw merit in the argument for front-loading rate increases, with a half-point hike on the table for May. Unless the intention is to push the markets lower by jawboning, it would be better if he refrained from commenting.

Investopedia sums it up nicely: "In the U.S., moral suasion is also known as 'jawboning,' since it amounts to talk, in contrast to more forceful methods the Federal Reserve (Fed) ...policymakers have at their disposal. More specifically, attempts by central banks to influence the rate of inflation without resorting to open market operations are sometimes called 'open mouth operations.' "

While the markets were already prepared for a 50 basis point rate hike at the upcoming May FOMC meeting, his comments apparently implied many more and perhaps even larger rate hikes to come thereby setting off a race for the exit.

S&P 500 Index (SPX) 4271.78 declined again for the third week plummeting 120.81 points or -2.75 ending well below the 50-day Moving Average at 4406.55 and below the 200-day Moving Average at 4496.69. After declining 121.88 points and closing just above the low on Friday greatly increased the odds it will soon retest the February 24 low at 4415. However, a quick but unlikely reversal higher would add symmetry to a potential Head & Shoulders Bottom pattern, as unlikely as that seems with interest rates on the rise.

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Equity Put/Call Ratio

Another worry for the bulls comes from Friday's equity put/call ratio at .87 compared to .82 on Friday January 21 the day before the first big leg down to 4222.62 on Monday January 24. Should it follow the same pattern, the February 24 low at 4114.87 could be revisited soon. Usually spikes up to new highs signal contrarian buying opportunities, but it failed in January and may do so again at least for a few days.

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