Market Bucks "QE Tapering" Anxiety, Breaks Out of Wedge
So much for a quiet market ahead of the Fed rate decision. The S&P was widely expected to continue to trade in a range leading up to tomorrow's potentially market-moving announcement, which is perhaps why it didn't. Stocks appeared unconcerned about tomorrow's decision as the S&P surged 0.78% to break out of the wedge pattern we have been highlighting recently.
In last night's Off the Charts newsletter and today's Morning Call video we highlighted a group of tech stocks that have some of the most compelling charts in the market. The fact that many of the most bullish chart patterns are in tech right now is evidence of an emerging theme: as interest rates rise, money could continue to rotate out of dividend stocks and into higher-beta stocks in tech.
We love to watch stocks that have seen large gap ups and formed new base consolidations above the gaps. Two such stocks that fit the bill are Cisco (CSCO) and Hewlett-Packard (HPQ). Both stocks looked like they wanted to break out yesterday, but were weighted down by afternoon market weakness. Both picked up today where they left off yesterday morning and posted solid gains. HPQ was the stronger stock today, gaining 1.11%, but both patterns still look very bullish.
SanDisk (SNDK) largely ignored the broader market weakness yesterday, perhaps foreshadowing additional strength in today's session. After an impressive breakout to multi-year highs yesterday, SNDK tacked on another 2.96% of gains today. It's hard to chase SNDK at these levels, but is one I would look to buy on any market dip at this point.
Google (GOOG) and Amazon (AMZN) have emerged as tech leaders, and both were strong today as well. GOOG broke back above recent pivot highs with a 1.62% gain, while AMZN flirted with recent pivot highs with a 1.33% gain. Amazon's cloud storage arm, Amazon Web Services, could get additional attention after General Electric (GE) announced it would use the service in its new "Industrial Internet" project.
Speaking of General Electric (GE), the stock broke out to new 52-week highs after formally announcing the aforementioned Industrial Internet initiative, which they are dubbing "Predictivity." In summary, the Industrial Internet as it applies to GE is a concept that would allow machines to communicate effectively with each other using advanced analytics to reduce waste and operate more efficiently. A recent study forecasts that business spending on Industrial Internet technology could exceed $500 billion by 2020.
The fact that the market was able to break out of the wedge pattern prior to the Fed announcement is a good sign, but now is not a time for complacency. Expect to sharpen its rhetoric about potential QE tapering while perhaps laying the groundwork for a September reduction in its monthly asset purchases. The market's reaction to that news is anyone's guess.
*DISCLOSURES: No relevant positions
