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Trader: Listen to Yellen, ignore fundamentals

Keith Bliss

By Keith Bliss, Cuttone & Co.

Were the soothing tones of the stock whisperer the catalyst to propel the market back to the all-time highs?

After the market rallied from the damage of early 2016, we noted that equities stalled in mid-March were waiting for a catalyst. The bulls had clearly reasserted their majority, but just like water, every market finds its own level of equilibrium, as we've seen the last two weeks.

Change in investor focus

Volumes had dried up to the point where the market barely budged, and it was clear that even the machines were taking a break before macroeconomic data kicked into top gear. Everyone was looking ahead to the employment situation on April 1, to be followed by first-quarter earnings that begin on April 11 with Alcoa, and of course, the next FOMC meeting at the end of April.

Given the soothing sounds of the stock whisperer—er, Janet Yellen—all that seems to have changed. If the Russell 2000 (^RUT) can get above 1160-1165 and the S&P 500 (^GSPC) can get and stay above 2080, then the all-time highs could be challenged. 

This turn from indifference to full steam ahead proves yet again that we should not go against (1) crude oil prices (CLK16.NYM), (2) the Fed (in particular Janet Yellen), and (3) the VIX (^VIX).

Speaking of earnings

As mentioned, first-quarter earnings season is just around the corner.  By all accounts, Wall Street is expecting dismal reports and less-than-stellar company outlooks. This will certainly cast a pall over the buying trend, but will it be enough to strip out the momentum we've seen since February? That’s doubtful, as the market has been taking its immediate cues from other places—again, most notably crude oil, the Fed, and indicators like the VIX. 

I suppose that fundamentals and the cash flow of a company will once again reign supreme in valuations, but until the market sheds all the outside influence that has been baked in over the last 7 years, I will continue to look at the market influences that have little to do with the operations of a company.

Today's magic numbers

Here are the magic numbers for moving risk markets:  VIX above 20 = sell, VIX below 14 = buy. Oil below $40 = sell,  oil above $40 = buy. Anything Janet Yellen says.