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T3’s Take 3: When the Doves Fly

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1) Another Dovish Signal

Today, Fed Chair Janet Yellen appeared before Congress to discuss the economy.

In prepared testimony, Yellen said the US economy is strong enough to warrant rate hikes and reduce the size of its balance sheet.

However, Yellen acknowledged that the Fed was keeping a close eye on inflation, which is a key factor in the bank’s rate strategy.

We’ve been seeing plenty of signs that inflationary trends are weak, and Fed officials have been divided on the outlook for inflation, so Yellen’s dovishness couldn’t be considered a shocker.

Nonetheless, the US dollar fell -0.5% against the euro and -0.7% against the Japanese yen.

My colleague Kurt Capra has been all over the dollar weakness, so I suggest you check out his latest analysis.

Meanwhile, US Treasury yields rose, which caused bank stocks to underperform, particularly regionals.

We also saw a modest pop in gold, though gold mining stocks were very strong, with the GDX ETF popping +1.1%.

US Treasuries were also pretty solid.

2) The Big Bounce

Following yesterday’s small victory, US equities made a pretty solid push higher today.

The SPX rose 0.7% to 2443.25, while the Nasdaq ramped up 1.2% on good news for a key momentum leader, and anticipation of a strong earnings season for the tech sector.

Amazon.com (AMZN) rose +1.3% on a strong reception to yesterday’s Prime Day, which was its biggest sales day in history.

Netflix (NFLX), which kicks off tech earnings season on Monday, rose +2.9%.

Scott Redler appeared on CNBC to discuss Amazon, Netflix, and other tech names. You can see the segment here.

Markets may have benefited from a short-term decrease in sentiment. Yesterday, the CBOE equity put-call ratio was a higher-than-average 0.69.

And the ISE Sentiment Index fell to 64.

Both numbers indicate strong demand for put options, implying that traders were bracing for downside.

It’s common for such short-term negativity to support a rally.

Meanwhile, we’re still seeing opposing fortunes in social media.

Facebook (FB) chugged up over 2%, while the weak Snap (SNAP) droppeed another 1%.

Twitter (TWTR) is also still ramping higher, which could be a sign that folks are once again spreading takeover rumors.

Biotechnology was in good shape with the S&P Biotech ETF (XBI) up 1.0%.

Utilities and real estate names were strong on the rise in Treasury yields.

The Russell 2000 had a very strong morning and looked set to make new all-time highs but fell of a bit towards the close.

Crude oil rose almost 1% on a huge drop in US inventories, though energy stocks didn’t act very well. In fact, the Vaneck Vectors Oil Service ETF (OIH) fell -0.2%.

3) So What’s Next?

This morning, Scott Redler said to “see if we can clear the descending channel at 2432ish” and that the next level to watch is 2440.

SPX cleared 2432 with authority today and finished over 2440, so it looks like the bulls are once again taking control.

Of course, we have earnings from JP Morgan (JPM) and Wells Fargo (WFC) on Friday, followed by Netflix’ report on Monday.

If we get strong earnings — and more importantly — strong reactions, maybe the SPX can keep squeezing up to make a fresh record high above the current 2453.82 record peak.

 

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