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Today's Commentary
Thursday, April 28, 2016

Riddle me this: The S&P 500 currently sits about 2% off its all-time highs, unemployment levels are the lowest in a long time (although the rate of change is slowing… shhh, don’t tell anyone) but the Federal Reserve can’t raise rates by a quarter point? Seriously, something’s amiss.

If you have read this column over the past week or so, you have seen a myriad of charts pointing to exhaustion in the market’s melt up and should be well aware of the potential danger in stocks and other risk assets.

On Wednesday, despite a 6% drop in Apple Inc. (AAPL) after its weak earnings report, stocks largely ended higher with the small-cap Russell 2000 leading the “charge” for the second day in a row.

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Are small caps becoming the new “safety trade”? I ask this jokingly, of course, because small caps, both in absolute and relative terms, are approaching a massive layer of technical resistance, which I discussed in the April 26 Daily Market Outlook.

As for the Fed, it is in a tight spot and surprised just about no one by keeping rates unchanged and remaining data dependent. Stocks flip-flopped in reaction to the non-news out of the FOMC meeting, although bank stocks did close off their highs. I reiterate my call to sell or short banking stocks here, as neither slowing economic growth nor a Fed that can’t raise rates is bullish for the large banks. 

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