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Fed-Induced Breather or Run of the Mill Digestion?

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Global markets are flashing slightly red this morning despite yet another whopper of an earnings report from Facebook (FB).

Facebook is around $130 and making new record highs, and I'm asking myself why I ever sold this stock. It's especially impressive in the face of Twitter's (TWTR) struggle to just meet its own guidance.

NDX futures are slightly in the red, as are SPX futures.

Overnight, Euro-area economic confidence beat expectations and German and Spanish unemployment declined.

We've talked extensively about how post-Brexit data has been beating expectations, and the trend continues.

Of course, this plays right into a conversation about the Fed because the Brexit has been a source of concern.

Yesterday, the Fed said it is less worried about near-term economic risks, which wasn't a total surprise given the aforementioned data trends.

Some folks are attributing today's little slump to the Fed's little hawkish twist, but I'm not buying that for 2 reasons:

1) The dollar actually FELL and gold rose after the release of yesterday's Fed statement, showing that traders still think the Fed's going to move slowly. The perceived odds of a Fed rate hike have risen, but perhaps not enough just yet.

The dollar and gold are also following through on yesterday's moves.

2) We've come a long, long way. The SPX is up 166 handles from the post Brexit lows and the FTSE 100 is up even more on a percentage basis. (see chart)

This little sideways grind feels more like run-of-the-mill digestion, which I think could continue.

I see August as being similar to the April-May snoozefest that bankrupted hordes of aggressive put options buyers.

SPX barely budged yesterday, but there were some positives below the surface. Tech (inspired by Apple's (AAPL) big earnings report, biotech, and small caps al did quite well, even with another big drop in crude oil.

Crude oil is an important driver of risk sentiment and fundamentals (it heavily impacts earnings and high-yield energy bonds), so I'm a bit puzzled at how the market yawned at a near-20% drop in WTI crude.

The big question I'm asking now is whether the good news we're getting (solid economic data, huge earnings from AAPL and FB) is coming just in time for a short-term top.

In my mind, price leads news (or as Mr. Jeff Cooper says, the news breaks with the cycles), so I'm wondering if this nice little streak of happy news is justifying all-time highs after the fact.

We've got Amazon (AMZN) and Google (GOOGL) hitting after the close today. Should both of them beat, it will be interesting to see if that inspires real buying.

For now, we still feel stretched and sentiment is positive, but you can't argue with price — the bulls are holding strong.

Good luck friends.