The bears got a little leverage following Tuesday’s big Fed announcement but the bulls also got a lift when the Federal Reserve left interest rates unchanged. Moreover, the FOMC also indicated they would reinvest principal payments from mortgage-backed securities to buy longer-term Treasuries.
In the end, the Fed met both sides in the middle but the market still succumbed to selling pressure. The Fed maintained the target range for the federal funds rate at 0.0%-0.25% and said the pace of the economic recovery and employment has slowed in recent months than previously expected. Duh.
The Central Bank will be spending up to $10 billion a month on 2-year and 10-years Treasuries but it won’t make much difference.
The Dow started the session with a triple-digit loss but recovered some and stabilized ahead of the Fed’s update. The market then rallied for an hour before succumbing to selling pressure.
The Dow ended Tuesday’s session with a double nickel loss (55 points, or 0.5%) and at one point was down nearly 150 points. The low was 10,551 while the high was 10,700. The Dow still faces resistance at 10,700-10,800 while support is at 10,400.
The S&P 500 fell 7 points, 0.6%, and closed at 1,121. The index briefly dipped below its 200-day moving average (MA) after touching a low of 1,111. The index almost made it into positive territory and traded to a high of 1,127, a level it continues to have trouble with. There is still the possibility of a test up to 1,150 but the bears have 1,100 and 1,070 in their sites.
The Nasdaq fared the worst, giving up 29 points, or 1.2%, and finished at 2,277. The index is also flirting with its 200-day MA and the weakness in Tech can be attributed to the drop in the Chip sector.
Intel (INTC, $,19.82, down $0.83) fell 4%, Advanced Micro Devices (AMD, $6.83, down $0.59) tanked 8%, Applied Materials (AMD, $11.53, down $0.34) dropped 3% and Texas Instruments (TXN, $25.35, down $0.35) slipped 2%. These four stocks make up nearly 60% of the Semiconductor HOLDRS (SMH, $27.19, down $0.98) which declined over 2%.
This morning’s headlines are all about China. To start, inflation is on the rise as China reported a 3.3% spike in consumer prices as the recent flooding caused a disruption in food supply. Food costs spiked 7% which was a main reason for the jump. The other bit of worrisome news was China’s producer price index (PPI) which grew 4.8% year-over-year in July but was 1.6% lower than June’s reading.
There are some other China tidbits worth noting but we are more interested in the open. It is going to be ugly again today which is exactly what the doctor ordered for our current put option trades.
Dow futures are down 147 points to 10,471 while the S&P 500 futures are off by 18 points to 1,101. The Nasdaq 100 futures are getting punished and are showing a decline of 28 points to 1,868.