By Kevin Marder
Modest stock gains were reversed following Wednesday's meeting by the U.S. central bank's policy committee, relegating the market to the minus column for the fifth straight session.
Comments by Janet Yellin after the Federal Reserve's meeting indicated a belief that interest rates may remain depressed for longer than anticipated. While remarks like these would have likely generated a market rally in the past, on Wednesday they produced selling.
The action of the major averages over the next week will go a long way toward determining whether the bloom is off the rose, i.e., whether market participants are beginning to lose their longstanding love affair with low interest rates. If so, this would have major ramifications for the bull market, seeing as how its entire foundation was built upon cheap money.
Chart created using TradeStation . ©TradeStation Technologies, 2001-2016. All rights reserved.
Any shift in the speculative sentiment that may or may not occur may first be felt among speculative growth titles. For this reason, the key thing to watch for is the behavior of recent breakouts, e.g. Cornerstone Ondemand , Ulta Salon /zigman2/quotes/210513442/composite ULTA +4.25% , Dave & Buster's Entertainment /zigman2/quotes/203157296/composite PLAY +3.68% , Adobe Systems /zigman2/quotes/200389143/composite ADBE +3.69% , Veeva Systems /zigman2/quotes/202850210/composite VEEV +2.08% , Penumbra /zigman2/quotes/203831055/composite PEN +4.50% , Weibo /zigman2/quotes/206830028/composite WB -1.76% , AMN Healthcare Services , Nevro /zigman2/quotes/209913092/composite NVRO -16.32% , and Emergent Biosolutions /zigman2/quotes/204817890/composite EBS -1.81% , just to name 10.
Even something like Cogent Communications Holdings /zigman2/quotes/200125343/composite CCOI +4.52% , Zendesk /zigman2/quotes/209571012/composite ZEN +0.87% or Zillow /zigman2/quotes/204413973/composite Z +3.56% , which just barely cleared their bases or are close to their base tops, are worth monitoring for any technical chart breakdowns.
In addition, senior growth stocks, or liquid glamours, are also important to watch for a shift in sentiment. At the moment, there are only about three that are still holding up: Amazon.com /zigman2/quotes/210331248/composite AMZN +1.00% , Salesforce.com /zigman2/quotes/200515854/composite CRM +1.77% and Ulta Salon . At that, CRM could not hold its recent breakout and saw distribution on Monday.
Facebook /zigman2/quotes/205064656/composite FB +1.70% , a liquid glamour, is losing its grip. Its recent breakout has failed amid a series of distribution days highlighted in the chart below. For some time, the view here has been that the social-media kingpin may be overowned by institutions, a phenomenon that occurs late in bull markets as large investors are done with the buying campaigns undertaken earlier in the bull.
Amid a vacuum of buyers, selling then begins to tip the balance of an overowned issue downward. At 3,186 mutual funds owning the shares, FB is widely-held by large players.
Chart created using MarketSmith . ©2016 MarketSmith Incorporated. All rights reserved.
Within the list, financials have underperformed the S&P in 10 of the last 11 days. Historically, the sector has proven to be an important leading indicator of long-term market direction, especially in a mature bull market.
What has particularly unnerved the segment is the flattening of the slope of the Treasury yield curve, or the difference between yields on shorter-term bonds like the two-year and longer-term ones like the 10-year. The spread between these two maturities was last at 86.9 basis points, a new low for the move. A tighter spread reduces the profit margin that banks make on loans.