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Could Fed Uncertainty Take Street Out at the Knees?

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March 11, 2015

A strong dollar sounds like a good thing, right? It does beef up U.S. consumer buying power but it also handed the Dow Jones Industrial Average and its blue-chip, export-heavy stocks the worst loss in five months on Tuesday. The drop erased 2015 gains for both the DJIA and the S&P 500 (SPX) and clipped some 1.7% off the tech-heavy NASDAQ Composite as expectations that the Federal Reserve will pull the trigger on interest-rate hikes sooner versus later sent the dollar ever closer to parity with the struggling euro, now fetching $1.0652. The CBOE Volatility Index (VIX), the market’s “fear gauge,” jumped 10% in Tuesday’s increasingly volatile session. Early stock indicators today do show stock sellers coming up for air, but there’s likely little to change sentiment heading into the Fed meeting next week.

In a Word? The stock market has been partially propped up on easy money and plenty of solid fundamentals, too, but that may be the harder sell right now. All attention is on next week’s Fed gathering where some believe the panel will drop the word “patient” to describe its approach to rate hikes. What other changes (and clarity) could come with the Fed’s release?

Key Levels in SPX. Bulls will want to see the SPX recover back above 2051 and hold that line convincingly to invigorate a new charge higher. On the topside, SPX 2077 becomes new short-term resistance.

FIGURE 1: SO LONG 2015 GAIN. Tuesday’s 1.7% slide in the S&P 500 (SPX) wiped out year-to-date gains for the broad index. Data source: Standard & Poor’s. Chart source: TD Ameritrade’s thinkorswim® platform. For illustrative purposes only. Past performance does not guarantee future results.

High-Calorie Portfolio. For those tuning out the macro noise for a look at individual movers and shakers, Shake Shack (SHAK) is on tap today for its first earnings release since its January initial public offering. A Street consensus estimate calls for a loss of $0.02 per share in Q4 for the restaurant that’s operating in an increasingly competitive higher-end burger market. Doughnut chain Krispy Kreme (KKD) is forecast to post Q4 earnings of $0.17 a share.

Good trading,

JJ Kinahan

JJ began his career in 1985 as a Chicago Board Options Exchange...

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