Good News is Bad News- S&P500 drops below 50 dma

If you’re following along at the Wealthsteading Podcast then you know that I thought that March would be a fairly uneventful month and that stability had returned- at least until April.  In April I was assuming that poor 15Q1 earnings would drive the market down again.

My optimism started to wane last week.  Friday the market was down nearly 1.5% in above average volume.  That was the most volatile and worst performing day since January.  Monday the market recovered some but in below average volume…that wasn’t a negative but it was a caution.

Today the indexes have collapsed.  The S&P500 broke below its 50 day moving average.  My preferred positons (those benefiting from lower oil and stronger dollar)- Foreign stocks and the Financial Sector are all declining.

Consequently I sold almost all my long positions and took profits.  I continue to hold my shorts in Oil and Gold, and today have initiated a short in the S&P500.

So what’s driving down the markets?  Reports of strong jobs and lower unemployment.  You see, on Wall Street good news is bad news.  The market is fearful that if employment is strong, then the Federal Reserve will raise interest rates…something that hasn’t occurred since 2006.  This six year bull market has been fueled by cheap interest rates.  Take away easy money and the party might end.

Personally I don’t think the Fed will raise rates anytime soon.  This is the standard pattern that’s developed over the past nine years-

  • Economy shows signs of improvement two weeks prior to Fed meeting.
  • Market drops because Wall Street fears a rate increase.
  • At the next Fed meeting they calm the markets and reassure that rates will remain low.
  • Market move up and then goes on to make new highs.

The next Fed meeting is March 17-18.

If the Fed does raise rates, I believe we’ll see a collapse in speculative Emerging Markets…but more on that later.

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