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Market Lab Report - Premarket Pulse 8/20/15

Major averages sold off ahead of the release of the Fed's meeting minutes yesterday then rallied back only to do another about face and head lower once again to finish down on higher volume. The number of distribution days is at nosebleed levels but that has been a less reliable indicator in this QE environment.

Most Federal Reserve officials thought economic conditions needed for a rate hike were “approaching”, thus making a September rate hike a possibility. “Most judged that the conditions for policy firming had not yet been achieved, but they noted that conditions were approaching that point,” according to the minutes.

Those in favor of a rate hike said an appreciable delay in a tightening monetary policy would spark inflation or financial instability. By contrast, only a minority of Fed officials counseled patience, noting that there were no grounds to think inflation would move back to the 2% annual target, particularly because of the strong dollar and recent drop in crude oil prices.

So while this Fed-speak implies more Fed members are pushing for a rate hike since the economy is "apparently" showing enough improvement to warrant such a hike, it ultimately depends on the strength of the recovery which is still quite suspect, and therefore allows the Fed to further postpone any rate increase on the basis of a stagnant economy.

Commodities/oils continue to plummet at a pace not seen since late 2008 shortly before the crash.

Short-sale target Tesla Motors (TSLA) reversed yesterday right at the 50-day moving average. Near-term we look for a downside objective of 232.74, the low of seven trading days ago. In a prolonged market decline, however, the stock could go much lower. The 50-day moving average plus 2-3% of upside porosity remains the primary guide for an upside stop on any short position taken yesterday morning when our SSS report on the stock was released.

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