The FOMC, not OIL, Dominates the Nervous Tensions
Everyone has been pointing the finger at Oil recently, suggesting that Oil was the reason the market has gotten hammered, but that's not really true is it?
Yes, the ETFs that track Oil are down big over the past week.
- iPath S&P GSCI Crude Oil Total Return (NYSEARCA:OIL): -7.99%
- United States Oil Fund LP (ETF) (NYSEARCA:USO): -8.45%
- ProShares Ultra DJ-UBS Crude Oil (NYSEARCA:UCO): -15.93%
And the market declined at the same time. The ETFs that track the market are also down.
- PowerShares QQQ Trust, Series 1 (ETF) (NASDAQ:QQQ): -4%
- SPDR S&P 500 ETF Trust (NYSEARCA:SPY): -3.4%
- SPDR Dow Jones Industrial Average ETF (NYSEARCA:DIA): - 2.85%
- iShares Russell 2000 Index (ETF) (NYSEARCA:IWM): - 4.65%
- ProShares Ultra QQQ (ETF) (NYSEARCA:QLD): - 7.14%
However, the suggested direct relationship is not accurate.
The headlines of financial media would tell you that Oil's price decline has been the reason for the recent market pressure, but I have advised my clients to look beyond that. It's not oil, but the FOMC that is actually causing most of the havoc.
The FOMC is expected to raise rates, and investors are nervous. It's as easy as that.
Today, oil is up, and if the direct relationship were true the markets would be up, but the markets were still under pressure, at certain times concerningly so, while oil prices increased intraday.
What to do from here:
We continue to prefer proactive strategies, and our Sentiment Table Strategy triggered a trade on Monday. This is only the 20th trade this strategy has made all year, that's roughly 0.4 trades per week on average, and the results have been solid (+62% YTD), so many of our clients are simply following that trade alert, but here's something else to rest your hat on.
- The market has historically ended the third year of a presidential cycle in positive territory. It has never been down in the third year of a second term in fact, so history tells us to expect a recovery from these levels and for the DJIA to end slightly positive for the year.
- The Market has a history of selling the rumor - buying the news when it comes to FOMC decisions like the one that is coming on Wednesday.
- The Junk Bond Market is concerning to the FOMC, and they now have new issues to deal with, ones that might have them turn much more cautious than they seemed to have been after recent speeches. Higher rates might really hurt parts of the bond market.
In addition to that, Our Strategic Plan Strategy, which is our longer-term strategy, also triggered a long position on Monday, so that makes two proactive strategies that triggered on Monday.
The technicals support the same.
If everything plays out, the nervous tensions are likely to go away after Wednesday, one way or another. Monday very well may have been the day to act.