Major averages bounced yesterday on higher volume on oil bouncing and an interest rate friendly statement from the Federal Reserve. The Federal Reserve's statement came as little surprise to markets which were trading higher prior to their press conference. The Federal Reserve predicted inflationary pressures will diminish further in 2015 because of falling oil prices, but the central bank sees little change in its long-term inflation outlook. The Fed predicted overall inflation as measured by the PCE index will have a core tendency of 1% to 1.6% next year instead of 1.6% to 1.9%. Yet core inflation, which strips out energy and food, is barely expected to show any change. The Fed estimates the central tendency of core inflation to be 1.5% to 1.8% in 2015 and 1.7% to 2% in 2016. The bank also made no change to its forecast for growth of 2.6% to 3% in 2015. Markets rallied on the news.
Futures are up sharply this morning as the market appears set to follow-through on yesterday's rally. This appears to be the start of the proverbial "Santa Claus rally" that may very well carry into year-end.
Short-sale target Tesla Motors (TSLA) cleanly undercut the 199.25 minor low, which served as a near-term cover point and downside price target. In our view profits could have been taken at that point and the stock could be left alone to rally and perhaps set up at a later stage. Our longer-tem downside price target may not come to fruition until TSLA announces earnings.
Short-sale target Workday (WDAY) is still showing a profit but in the event of a market rally it makes sense to cover shorts and let them play out as they bounce and rally with the market. As Gil Morales mentioned in the chat room on Tuesday, at that point he believed that the "heart of the watermelon" on the short side had already been taken out, which makes sense considering that we first highlighted TSLA as a short near the 250 price level.
Yesterday's action produced a pair of pocket pivots:
Human resources company Trinet (TNET) - Earnings strongly accelerating, group rank 26.
Medical care products company Insys (INSY) - Earnings and sales strong, pretax margin 39.1%, ROE 518%, group rank 2.