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Market Lab Report - Premarket Pulse 3/17/16

Major averages rose on higher volume with the S&P 500 closing above its 200-day moving average.

The Federal Reserve on Wednesday indicated it only expects two interest rate increases in 2016 instead of four. In a statement, the central bank said "global economic and financial developments continue to pose risks" to the U.S. The Fed trimmed its estimate of GDP growth in 2016 to 2.2% from 2.4%. And inflation as measured by headline PCE is now expected to rise to 1.2% by year end, down from a prior 1.6% call. The vote was 9 to 1, with Kansas City Fed President Esther George dissenting. She wanted a quarter-point increase in rates.

This reduction in anticipated rate hikes gives the Fed room to further reduce the number later this year to no rate hikes, or they may even introduce negative rates, should the global economy remain stagnant. Of course, central banks are failing to see that such actions are not helping, or more likely, they are buying time by propping up the price of hard assets and equities as they have done since 2009.

GLD and Silver Wheaton (SLW) had continuation pocket pivots as the Fed's dovish response weakened the dollar thus strengthened gold and silver. Eroding confidence also contributed to the rising price of gold.

A pronounced divergence exists between Dow Jones Utilities and major indices such as the S&P 500 between 12/4/15 when Dow Utilities started on its uptrend while the S&P 500 trended lower. The major indices eventually bounced but Utilities continued higher as well. Indeed, a number of utility stocks have been hitting our screens.

So while this uptrend has been mostly a junk-off-the-bottom and defensive name led rally, it is somewhat similar to the QE-manipulated rallies we had in 2009. Thus, central banks which sit with a considerable amount of power, especially when in alignment, can push markets much higher than anyone expects, despite the worsening fundamental backdrop.

Futures are lower this morning as the tug-of-war between easy money and slowing global growth continues.

Semiconductor Maxlinear (MXL) had a pocket pivot breakout. It can be bought on a constructive pullback closer to its 10-day moving average. Earnings and sales are skyrocketing, pretax margin 23.8%, ROE 38.9%, group rank 29.

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