Yesterday the U.S. market indices responded to Bernanke's early afternoon announcement of an extension to the "Operation Twist" program with a quick drop, then recovered within minutes, and ended the day mostly flat. The DJIA and S&P 500 closed down less than 0.20%, while the Nasdaq Composite eked out a small gain.
So it appears that the action taken by the Fed was largely anticipated, and now the market will turn its focus looking for the next catalyst. The Fed lowered their target for GDP growth for the full year, so it appears the U.S. economy continues to muddle along at a slow rate of growth, which is still better than what's happening in the EU zone.
Market leader Bed Bath & Beyond (BBBY) reported earnings and revenues after the close that were higher than the prior year's quarter, but revenues were lower than analyst estimates. The company also lowered earnings estimates for the second half of the year as it ramps up its e-commerce business to compete better with Amazon (AMZN). The stock is down 10% in the pre-market.
Athena Health (ATHN) reversed lower in heavier trade, and now sits just above its breakout point of $79.42, and Cerner (CERN) also closed lower in heavier volume, falling back inside its cup breakout pattern. Other market leaders pulled back or traded sideways in moderate volume.
Going forward, it feels like the market will pause for a bit to consolidate the recent run up and digest the news flow. The indices are now forming what looks to be an upward parallel channel, and a pull back inside that channel would be constructive to the bull case as detailed in the charts below.
We could see some sideways backing and filling in an upper trading range that corresponds to the trading during the second week of May as shown in the first chart, or the market could drop a bit lower to retest the lower area of the upward parallel channel. Currently I'm leaning towards the latter, but keeping options open to all scenarios.
Click on chart to enlarge view:
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