The market continues to perform the two-step as investors move up one day and down the next. The swings are mild by terms of volatility, but the message from my view still remains one of wait and see. What are waiting for? Good question… first, the Federal Reserve Chair to speak on Friday at the Jackson Hole meeting and explain clearly what the plan is for the Fed as it relates to interest rates going forward… do we hike or not? Second, crude oil in terms of the rumors surrounding OPEC and controlled production levels to moderate prices. That meeting isn’t until last September and the volatility may remain on that front near-term. Throw in the recent worries/rumors about increased production from Iraq and other nations. This is still a supply/demand equation and one that gets updated every Wednesday with reports from the EIA. Until these issues are addressed the tug-o-war may continue. Remember the markets hate uncertainty.
Gold is reacting to the worries about the Fed and interest rates as the metal breaks near term support and could test $125.25. The miners (GDX) tumbled hard on Wednesday breaking support at the $27.70 mark. Watching both the metals and the miners for some clarity on direct… but, that isn’t likely until after Ms. Yellen speaks on Friday. The charts for silver have been very similar in nature to gold and worth watching as well.
The S&P 500 index remains in a topping range as the sectors were split on the day with five up and five down. The materials (XLB) was the leader bouncing back from being the leader on the downside yesterday. Telecom (IYZ) and technology also showed some positive movement. Healthcare (XLV) continued to slide on the weakness in biotech (IBB). A test of $277.90 for IBB is next on the agenda? The worries are related to the government investigation of the pricing on drugs… big brother once again strong-arming the capitalist approach.
Natural gas (UNG) the last four trading days has been rising off the lows once again as the rumors are for natural gas is higher demand. Down trending channel in place and a move above $8.60 would be a positive for the reversal. The stock ETF (FCG) cleared resistance at the $25.40 level last week and remains in a positive uptrend as well.
Gasoline (UGA) is hitting resistance at the $25.50 level as commodities stall near-term. A move through this level would also break the downtrend line of the May highs with the 200 DMA at the $26 mark. If crude holds the move higher gasoline has a better chance of continuing the upside move.
Treasury yields are also stuck in limbo over the Federal Reserve view on interest rates. The narrow trading range remains, but depending on the comments from Yellen tomorrow, it could make a decisive move up or down. If she remains neutral or vague, don’t look for much change as it relates to the yield on the bonds.
Overall this is a good time to evaluate your positions and determine how much risk you are willing to accept near-term as it relates to the risk fo the markets. There is plenty of room to run higher if the data remains and the Fed is accommodating on interest rates. Risk management from my view is the priority for now.