THE CLOSE

The DOW dropped 470 points from 225 pm after ripping to the upside after the Fed minutes. The S&P dropped 48 points. The NASDAQ dropped 120 points. We are being inundated with emails asking why.  Frankly, we don’t know and could care less. The fact is the Fed was actually more dovish than most expected., We were not surprised as they will be stay easy as long as they possibly could. They have lived off the easy money. On top of our Fed, Japan and Europe still have negative rates and are still printing. We will just say the same thing we have said for quite a while…let’s just hope we never get to the point where the Fed is forced to raise rates to fight off whatever monster they are creating finally shows up.

We think we just saw the opposite of what happened two Fridays ago when the market had a vicious reversal to the upside. That was the day we called A low because we felt sellers petered out and buyers finally got going. We think that after the recent sharp rally, give or take a few, buyers finally petered out and sellers got the upper hand. Not by coincidence, the Dow and S&P petered out right around the 50 day average.

This does not mean we have to revisit the recent lows. But it does mean to be more careful here. There are already more than 50% of markets and sectors in bearish shape. It will not take much. We also make note the market has become narrower in the past couple of days where most of the $ headed into some of the FAANG names. Narrower markets are great if you own the narrow areas but are also indications of trouble just ahead. It is narrow markets that often leads to drops.

Just expect markets to continue to be a tougher proposition…and watch to see if the 10 year breaks 3%. Looks like it is a gimmee at this juncture. Not sure if it is an end of the world scenario but higher rates do provide competition for money as well as the cost of capital going up.