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Fed Pushes Market Into Maximum Resistance

An image of rising and declining prices
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Stocks rallied after Federal Reserve Chair Janet Yellen conveyed a cautious approach to further interest rate hikes due to global economic uncertainty. Specifically, Yellen mentioned uncertainty over China, low oil prices and tightening financial conditions.

But this came as a surprise to many, as just days before, St. Louis Fed President James Bullard indicated the central bank may raise rates as early as April.

Technology and health care were two of the day's best-performing groups, up 1.6% and 1.2%, respectively.

While oil prices declined 2.8% to $38.28 a barrel, the Fed's dovish tone helped boost energy and financial stocks.

The yield of the 10-year Treasury note fell to 1.81% from 1.89% on Monday as bond prices rose. Gold also advanced, up 1.3% to $1,235.60 an ounce, and the U.S. dollar fell 0.8% against a basket of 16 currencies.

The S&P/Case-Shiller 20-City Composite Index rose 5.7% year over year in January, which was near analysts' expectations.

At Tuesday's close, the Dow Jones Industrial Average added 98 points to 17,633, the S&P 500 gained 18 points at 2,055, the Nasdaq was up 80 points at 4,847 and the Russell 2000 jumped 29 points to 1,109.

The NYSE Composite's primary exchange traded 969 million shares with total volume of 3.8 billion. The Nasdaq crossed 1.8 billion shares. On the Big Board, advancers outpaced decliners by almost 4-to-1, and on the Nasdaq, advancers led by 2.9-to-1. Block trades on the NYSE increased to 5,734, up from 4,295 on Monday.

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The S&P 500 closed above the bearish resistance line drawn from the November and December highs to the recent March high. Note the MACD sell signal and the very low volume.

Conclusion

The Dow Jones Industrial Average shows a similar pattern to the S&P 500 while the mid and small caps are far from challenging their major resistance zones.

The phrase "Don't fight the Fed" keeps bothering me as I caution our readers to sell into the current rally. But what is the Fed's direction?

We thought we knew last week when Bullard, a voting member, referred to prospective gains in inflation as a reason to increase interest rates. He left the clear impression that a rate hike in April was on the table.

Do you feel like Charlie Brown and Lucy just pulled up the football again?

How can policy discussions at the Fed change from hawkish to dovish in just one week? Perhaps, as I've suggested previously, Yellen should assert some discipline when it comes to members making comments like this.

From the lack of volume and mediocre breadth, it appears I'm not the only one who is having difficulty reading the central bank's tea leaves.

Today's Trading Landscape

To see a list of the companies reporting earnings today, click here .

For a list of this week's economic reports due out, click here .

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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