Wednesday saw investors being cautious in the morning session ahead of the Fed’s rate announcement. The indices turned a little lower just ahead of the announcement and then when the Fed stated that they saw rate hikes before the end of 2023, stocks turned sharply lower. The indices would rebound a bit, but turned lower again heading in to the close.
At the end of the day all four indices wound up finishing lower with the Dow taking the worst hit at -0.77%. The S&P dropped 0.54%, the Nasdaq fell 0.24%, and the Russell lost 0.23%.
Nine of the 10 main sectors finished lower on Wednesday with the consumer discretionary sector moving up a modest 0.05% as the only one that finished in the black.
The utilities sector suffered the biggest loss at 1.50%. The consumer staples sector dropped 1.33% and the materials sector lost 1.11%. Those were the only three sectors that lost more than 1.0%.
My scans turned more negative last night with 59 bearish signals and 14 bullish signals.
The barometer ended its trend of upward moves toward positive territory once these results were added in to the calculation. The final reading last night was -19.6, down from -4.6 on Tuesday.
There was a clear theme on the bullish list with seven of the 14 signals coming from the financial sector. One of the signals was on the Financial Select Sector SPDR Fund (NYSE: XLF). Obviously we don’t have the traditional fundamental indicators that we have on individual stocks, but there was a bullish signal on the XLF from Tickeron’s trend prediction tool. The signal showed that the probability of a move higher over the next month is at 89%.
We see on the chart how the XLF has been trending higher since the end of October. There is a trend channel that has formed since the beginning of the year and it is a little different from the channels I usually point out. In this case I noticed how neatly the highs connected and then drew a parallel lower rail. The low from January connects with the low from the last few days. Normally we would see a few connection points on the bottom rail. I also took the stochastic indicators in to consideration. We see they are in oversold territory and made a bullish crossover last night. They also made bullish crossovers at the end of October and the end of January, just before big moves to the upside.
Buy to open the August 36-strike calls on XLF at $2.00 or better. These options expire on August 20, 2021. I suggest a target gain of 100% and that means the fund will need to reach $40.00. The target does require that the fund reach a new high, but based on the moves in November and February, I think the target is reasonable. I suggest a stop at $35.35.
— Rick Pendergraft
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