Investors Keep Their Feet On The Ground

Investors managed to resist mania on Wednesday after impressive economic data combined with a decision from the Federal Reserve’s Federal Open Market Committee to delay the dreaded taper its bond-buying. Stocks held close to Tuesday’s closing prices and the Chicago Board Options Exchange Volatility Index (VIX) – also known as the “fear index” – inched upward by 45 basis points, despite economic data which would have sent investors into a euphoric “risk on” mode only a month earlier.

The market finally seemed to get a grip on its bipolar disorder, with the realization that stocks have reached fair value. The Relative Strength Index for the S&P 500 has been in the 60s for nearly a month. An RSI above 70 is seen as an “overbought” signal. Investors finally seem content with the fact that everything is okay. No need to go nuts – at least not today.

The Bureau of Economic Analysis announced that during the second quarter of 2013, the American economy expanded at an annual rate of 1.7 percent. Economists were expecting to see expansion at a rate of only one percent.

The ADP National Employment Report for July indicated that private sector payrolls increased by 200,000, beating expectations of an increase by 180,000 jobs. Beyond that, the June figure was revised upward from 188,000 new jobs to 198,000.

The Dow Jones Industrial Average (DIA) lost 21 points to finish Wednesday’s trading session at 15,499 for a 0.14 percent decline. The S&P 500 (NYSEARCA:SPY) dipped 0.01 percent to 1,685. (It’s been closing at 1,685 all week. The only changes have been with the fractions.)

The Nasdaq 100 (QQQ) advanced 0.16 percent to finish at 3,090. The Russell 2000 (NYSEARCA:IWM) rose 0.17 percent to close at 1,045.

In other major markets, oil (USO) soared 1.88 percent to close at $37.36.

On London’s ICE Futures Europe Exchange, September futures for Brent crude oil advanced by 91 cents (0.85 percent) to $107.82/bbl. (BNO).

August Gold Futures advanced by $13.10 (1.00 percent) to $1,325.50 per ounce (GLD).

Transports returned to cruising speed on Wednesday, with the Dow Jones Transportation Average (IYT) advancing 0.72 percent.

In Japan, stocks sank as the yen regained unwanted strength to 97.59 per dollar during Wednesday’s trading session in Tokyo. A stronger yen causes Japanese exports to be less competitively priced in foreign markets (FXY). As a result, exporters led the decline, with Honda falling 2.2 percent. On a happier note, Tokyo Electric Power – the company that brought you glow-in-the-dark Bluefin tuna – saw its share price sink 5.5 percent. The Nikkei 225 Stock Average sank 1.45 percent to 13,668 (EWJ).

The heavily rumor-driven Chinese stock market had a good day, as rumors again began to circulate (for the thousandth time) that the government will relax some of its restrictions on real estate transactions. The Shanghai Composite Index advanced 0.19 percent to close at 1,993 (FXI). Nevertheless, Hong Kong’s Hang Seng Index declined 0.32 percent to finish the session at 21,883 (EWH).

European stocks were mixed on Wednesday, despite news that the all-important consumer of European exports – the USA – saw its second quarter GDP reading come in 70 percent higher than expected, indicating that the American economy expanded at an annual rate of 1.7 percent. Meanwhile, European investors were confronted with the sobering news from the International Monetary Fund that Greece will need another €4.4 billion in debt relief (VGK).

The Euro STOXX 50 Index finished Wednesday’s session with a 0.32 percent advance to 2,768 – climbing further above its 50-day moving average of 2,688. Its Relative Strength Index is 63.98 (FEZ).

Technical indicators reveal that the S&P 500 remained above its 50-day moving average of 1,646 after finishing Wednesday’s session with an insignificant, 0.01 percent dip to 1,685.73 – after closing at 1,685.96 on Tuesday and 1,685.33 on Monday. At this point, bears are hoping to see the formation of a head-and-shoulders pattern on the S&P chart. Its Relative Strength Index dipped from 61.72 to 61.57. The MACD has just crossed below the signal line to suggest a likely decline.

For Wednesday, five sectors were in positive territory and four sectors were in the red. The consumer discretionary sector led the group, with a 0.52 percent advance.

Consumer Discretionary (XLY): +0.52%

Technology: (XLK): -0.35%

Industrials (XLI): +0.36%

Materials: (XLB): -0.34%

Energy (XLE): +0.33%

Financials: (XLF): +0.05%

Utilities (XLU): -0.73%

Health Care: (XLV): +0.04%

Consumer Staples (XLP): -0.02%

Bottom line: Investors managed to remain realistic on Wednesday, as the major stock indices were relatively unchanged, despite a better-than-expected private sector payrolls report from ADP, better-than-expected second quarter GDP expansion and a decision by the FOMC to delay any tapering of its bond-buying.

Disclaimer: The content included herein is for educational and informational purposes only, and readers agree to Wall Street Sector Selector's Disclaimer, Terms of Use, and Privacy Policy before accessing or using this or any other publication by Wall Street Sector Selector or Ridgeline Media Group, LLC.