US stocks fell sharply Tuesday following the 2:15 ET Fed announcement, in which the FOMC decided to keep rates steady and declined to introduce any new policy measures. Stock futures rose pre-market after a better than expected economic sentiment reading out of Germany, sparking some renewed optimism. Major indices quickly dropped from positive territory to down more than 1%, with the S&P barely avoiding a close below its 50-day moving average with a small last ditch snap-back bounce into the bell.
The market had managed to remain in positive territory for most of the day, but many leading stocks were already showing weakness into the Fed announcement. Former leader Amazon.com (AMZN) had a dismal day, closing down 4.75% as analysts continue to sour on the stock following a poor earnings quarter. Baidu.com (BIDU) could not shake the curse of the Chinese equities as it fell 4.25%. Green Mountain Coffee (GMCR) saw its recent resurgence halted, finishing the day down 11.58%. But the biggest casualty was Best Buy (BBY), which fell more than 15% following a disappointing earnings report.
Banks also saw heavy selling after the Fed decision, with Dick Bove heaping on the misery by cutting Goldman Sachs (GS) earnings estimates by 66%. GS finished down more than 3% on the day. JP Morgan (JPM) was holding up well but took a sharp turn lower after news that the liquidator of MF Global would be looking into certain actions from the firm, which acted as a lender to the broker-dealer's parent company.
LEVELS TO WATCH
The Rally from the October 4th low of 1070 to the October 27th highs of 1292 was fast and furious. The pullback into the Friday of Thanksgiving weekend on 11/29 held the last line in the sand, the 61.2% Fibonacci retracement (1158), before the rally continued.
To measure the dip buying – you can do it again from that low of 1158 to 1267 high to figure out if we can see any continuation into year-end.
The levels on the SPY are:
The 50% retracement of the move, which $121.40.
The 61.8% retracement, which is $120.
The rally can still be intact, but only as long as we stay above both these points. Buying the dip and not chasing momentum is the only way to stay safe and prudent in this headline driven market. Have a game plan with levels to watch then look at the leaders in those areas.
*DISCLOSURES: Scott Redler has no positions
