What A Difference A Day Makes

It seemed the market was generally pleased with yesterday's FOMC statement, as the S&P 500 rallied back from its early lows and closed above the 1120 level for the 7th straight day. But after thinking about it overnight, it seems investors have reached a difference conclusion this morning, and view the Fed's statement as more worrisome.

The fact that the Fed said it still needs to be extremely accomodative, and rollover existing bonds on its balance sheet, is really a testament to the fact that this economic recovery remains fragile. We are now roughly a year into this recovery, and usually at this point we are not talking about additional stimulus measures needed to boost the economy.

I don't really think additional easing would do all that much right now. The tax uncertainty and increased regulations is keeping big businesses on the sidelines right now from making big moves, and small businesses are equally worried about taxes, healthcare costs, etc., and this is keeping them from hiring. Hopefully some of this uncertainty will be alleviated after the November elections.

Credit concerns are rising again in Europe, and this is causing a big drop in the euro today. Conversely, the dollar is having its best percentage gain in two months. Gold is higher today near $1202, but most other commodities are lower.

China reported disappointing data, which weighed on Asian markets overnight. Japan was down -2.7% as the Yen continues to clime to 15-year highs.

Bond yields continue to move lower, with the 10-year yield falling to new lows at 2.70%. And the volatility index (VIX) is not surprisingly spiking higher, up 14% to 25.55.

Trading comment: Time to manage risk, and adhere to stop losses if they are hit. I have recently mentioned that we needed to watch the SPX 1131 level, as that represented the June highs in the index. For the last few days we have gotten close to that level (see horizontal line below), but today it looks as if that resistance will remain in place for the time being.

This is just day one of what could be another pullback. Given that the market had rallied nearly 12% over the last 6 weeks, a pullback at this juncture would be a normal occurrence. I just want to keep some powder dry, and hopefully look for opportunities to get into some of the leaders that have been hitting new highs and now could pull back to offer attractive entry points.