The Fed is typically looked at as a driver that only stears down a one-way street. To many Greenspan critics, it often appeared that he didn’t know how to slow down gradually and avoid overshooting the intersection. After listening to Ben Bernanke today, it was refreshing to hear that he is contemplating a real “pause.” As I mentioned in my post, “Rates of Interest”, there is no guarantee that once Ben stops raising rates, that he is obligated to stop entirely until the next time he needs to initiate a long sequence of rate reductions. Today, he actually said, “There is always the possibility that if there’s sufficient uncertainty that we may choose to pause simply to gain more information, to learn better what the true risks are and how the economy is actually evolving.” This is a huge divergence from past Fed mentality and one that I applaud. Unfortunately, I am doubtful that our current market will like dealing with this kind of uncertainty if it ever happens. The critics want to avoid overshooting but are they really willing to entertain a Fed that tries to dial in the ideal rate by raising, pausing, lowering, pausing, raising, etc.?

10) You notice when Joe Kernen gets a haircut even before it is repeatedly mentioned on air.

9) Your Squawk Box Fantasy Portfolio has only increased because of correctly answering all the daily Bonus Bucks questions.

8) You recognize the new CNBC sound effects when you play your favorite video games.

7) You try calling into the “Mad Money” lightning round at the previously recorded midnight showing.

6) You have memorized the scripts of repeated “news” by the time it appears for the fifth time on the “Closing Bell.”

5) You have actually watched “Conversations with Michael Eisner.”

4) Your mind frequently wanders to the analysis of who is “hotter “? - Erin, Maria, Becky, et al.

3) You disclose your stock position conflicts of interests when giving a cocktail party stock tip.

2) You say “Booyahhhh!” when you call your mother.

And the Number 1 reason you know you watch too much CNBC….

1) Your TV has a burn-in shadow of the stock ticker.

Last week’s market action in interest-rate sensitive stocks such as utilities, REITS, and some of the banks was impressive. And as far as I am concerned, a bit too impressive. I pulled up all the charts from these sectors and after reviewing the price moves and accompanying volume, I suspect that much of last week’s gains in these stocks will be tough to hold onto or extend. If interest-rate sensitive stocks found their way onto your radar screen, please take extra precautions in your analysis. I suspect that the Beige Book release on Wednesday will be the next opportunity to hype the concept of suspended rate hikes so it will be interesting to see how much more juice can be squeezed out of this tired story.

There once was a bunch of bulls who were bored with a market that had been trading sideways for 5 months after a nice two-year run. They knew that they had to do something to shepherd the market to new heights. But faced with the facts of oil at $55 per barrel, higher commodity prices, housing bubbles, record trade and budget deficits, and a flattening yield curve, it would be a challenge. In the late spring, they heard FOMC member Richard Fisher on CNBC say that the central bank may be nearing the end of its tightening cycle. To amuse themselves, they took a great breath and sang out in unison, “One and Done! One and Done! The Fed is done with rate hikes!”

Investors bought into this story and pushed the market higher for a nice rally. But when they arrived at summer’s end, oil had increased over 20% and the Fed rate hikes in June and August had made them look a bit silly.

“Don’t cry ‘One and Done!’ you bullish shepherds,” said the bears, “when there’s no proof that rates will stop increasing.” Once again, investors had paid up and got stuck in a flat market.

Then a devastating hurricane named Katrina hit and oil prices spiked even higher. Inflation fears would be certain to follow – wouldn’t they? The bears had a strengthened case but the bullish shepherds really know how to spin stories to their liking.

When the storm cleared they would have another chance to rally the market before the next FOMC meeting. Pundits and economists suggested that the Fed would recognize the hurricane’s impact on the economy and change their course. The bullish shepherds sang out again, “One and Done! One and Done! The Fed is done with rate hikes!” To their naughty delight, they watched investors help them drive the bears away and got a 2% bump in the market.

When September 20th came, the bears listened to the Fed raise rates one more time. They sternly said, “Save your optimistic song! Don’t cry ‘One and Done!’ you bullish shepherds when there’s no proof that rates will stop increasing.” Once again, investors had gotten suckered into paying higher prices and were still stuck in a flat market.

But the bullish shepherds weren’t embarrassed or apologetic. They just grinned and laughed at how easy it was to convince investors to buy this market and used the same refrain in January and March. Despite the fact that rates actually went up in November, December, January and March, oil was spiking and the market was moving sideways – investors were still believing this story. When dovish comments by FOMC member Janet Yellen prompted another cry of “One and Done! One and Done!” - a 2% move was the prize.

At some point in the future, the bullish shepherds knew they would be right – the Fed would actually be done. But what would they tell investors then? Sometimes when you use up all your lies by telling them too often, there aren’t any good lies left when they are urgently needed.

The moral of Aesop’s “The Boy Who Cried Wolf” was “Nobody believes a liar…even when he is telling the truth!” But that doesn’t seem to apply to the “One and Done” story. It used to be said “once bitten – twice shy” not “fives time bitten – no times shy” and so much for “fool me once – shame on me…”

Every fable has a moral – but not every fable has a happy ending. Morals are nice, but I am more concerned that you find a happy ending.

Volatility in the market was widely expected for this week and that is what we are getting. Earnings season, oil, interest rates and geopolitical events are shaking things up and you probably are getting numb to hearing about these issues. All the noise sounds so familiar. Turning up the volume or straining to listen even harder to what the market is trying to say is counterproductive. Sometimes it’s tough to filter it all out and when that happens, I believe that it’s better to let the market alone as much as possible and just be immediately ready to move as soon as there is clarity. On top of all the noise, I dealt with two recurring issues that periodically affect my willingness to change signals and one troubling factor that I have struggled with for years.

First of all, I had to largely ignore insights from last week’s market action due to the light volume from the holiday-affected trading. I always hesitate to change signals during periods of abnormal volume so this week I didn’t give as many Down signals as I probably could have. In fact, I decided to retain about 400 Up signals that I have been closely watching for the past 3 weeks because I didn’t get volume confirmation. I am also hesitant to change signals during the earnings season and that also contributed to the lower number of signal changes.

While I expect this to occur each holiday-shortened week and earnings season, something else is making me feel different about what is going on in the markets. As I will discuss in greater detail in a future post about my technical analysis style, my greatest challenge is dealing with stocks and markets that are hovering around key resistance levels. Today, I am facing this with the two dominant factors that are largely responsible for where our markets are heading - oil and interest rates - and this is the thing that is really dominating my analysis. Both are at levels that imply a Breakout or Breakdown is near.

If oil breaks out ( which I believe it already is,) sooner or later stocks will suffer from it. I am only amazed that it has not happened so far. However, from last week’s action and confirmed by today’s rally, it is clear that oil has not lubricated the downward path enough to cause the bulls to slip. I believe it’s only a matter of time before it does. If it’s true that the market slides down a “slope of hope,” this one is going to be very black and slippery. If you analyze the new Up signals this week, you will see that quite a few of them came from the energy sector. Last week’s move in oil finally convinced me that it was time to recognize we were on a breakout and change some Down signals about which I had to concede I was wrong and more importantly, that I expected to become even more wrong.

Regarding interest rates, the move around 5% on the ten year looks more like a breakdown and if it does, I guess we can expect more of the rallying action we saw today. I did have to chuckle more than a few times today reflecting upon how much we moved on such meaningless “olds”. I’d like to call it “news” but it there isn’t anything new in it. Oh my - we now believe that the Fed is almost done raising rates. Brilliant!! Yesterday, Moskow was hawkish, today Yellen is dovish. In the “battle of the birds,” the dove is winning (at least today). Then the Fed minutes came out as I was writing this post and yep, we have proof that some on the FOMC (say Yellen) are debating with others on the FOMC (say members like Moskow) that they should determine what to do about the Fed Funds rate. Brilliant!! It’s so great to hear “One and done” again. Maybe we can hear it a few more times before the next FOMC meeting on May 10th.

So there you have the “reasons of the day” for the nearly 2.0% move. I am somewhat relieved that we weren’t expected to believe it was because of the new OMB and Trade appointments. Or because the Chinese president is going to bow down to President Bush tomorrow and give in to all our demands. Or… (substitute any other goofy explanation.) Tomorrow is another day and my guess that it will have another reason. Good thing the bulls didn’t waste some old standby explanations - “it’s all about the positive earnings news” or “it’s all about the positive guidance”. I am guessing they will pull them out sooner or later.

It is critical to have a feel for the general direction of the market and the strength of its current move. I work off the premise that due to the influences of mutual funds, hedge funds, indexing, program trading, etc. that 50% of a stock’s move is related to the market, 25% related to the sector / industry and 25% related to company specific events and performance. Consequently, I obsess over the market and whether it is with me or against me.

Chasing returns is an unfortunate but common phenomenon for investors and typically correlates pretty strongly with the top of individual stock moves as well as tops in the overall market. For years, I spent a tremendous amount of time researching and following a bunch of market indicators to get a feel for when it was too late to get in and equally important, when to get out while the getting was still good. Although I still look at existing market indicators on a monthly basis, I found that the amount of analysis I did was not worth the results. There was too much conflicting data and it was clear that I needed to create something that was fast, simple to use and easy to understand.

Since the Hedgefolios universe of almost 4000 stocks covers over 99% of the total market capitalization and I give “UP” or “DOWN” signals on all of them each week, I knew I had the raw data. It was easy to create a bullish / bearish percent indicator and that is what you find with the second chart on the ANALYZE MARKET STATISTICS section called the “Hedgefolios Signal Indicator.” However, this indicator and bullish percent market indicators in general have some inherent flaws in my opinion given that they are contrary indicators at extremes and they don’t do a good job factoring in the element of time.

As a result, I set out to build an algorithm that fine tuned the rougher Hedgefolios Signal Indicator to exhibit market strength as well as an estimate of the time remaining in the move. Without disclosing the actual formulas, the Hedgefolios Timing Indicator measures the strength of Up signals (HF Bullish) versus the strength of Down signals (HF Bearish) by applying a time factor to each signal and creating a composite score for both sides of the market. Like many of my methodologies, the time factors are standardized and change flexibly with changes in the market over time. If the current reading for the HF Bullish is higher than HF Bearish, the indicator is predicting that the market has an upward bias and vice versa. A crossover of the HF Bullish and HF Bearish lines implies that the market has changed direction. As you can see from looking at the chart, extreme levels are at .1000 on the bottom and .5000 at the top and typically, when either the HF Bullish or HF Bearish readings hit these levels a reversal is not far behind. It is also helpful to evaluate the slope of the lines as they indicate the rate of acceleration in the relative moves as well as perceptions of the buying power and selling pressure.

Some drivers see a yellow light and speed up… some drivers see a yellow and slow down… and others don’t seem to pay attention to any color of stoplight. The same goes for many investors, but since you are reading Hedgefolios … I assume that a yellow light will cause you to reflect on your portfolio. As I wrote in yesterday’s post, last week was very destructive to the technicals of so many companies, and as a result, I am flashing a big yellow light on the market.

Please do not confuse this with me giving a market call as I don’t like market calls in general, and more specifically, I don’t make any recommendations of what you should do with your money. Besides, market calls tend to be forgotten when they are wrong and only hyped the few times they are right. Some analysts and pundits still have the claim-to-fame of having called 1987’s Black Monday and yet, we have hardly heard from many of them since then and certainly not since 2000. Amazingly, it seems that they have either not made any other calls since 1987 or they haven’t made any that were too correct (that’s the one I am going with.) So - I’d rather not go down that road and hope that you use this yellow light to decide whether you want to speed up or slow down. That’s much more important than whether I am right about my concerns.

Back to the signals - this week I gave 363 new stock signals (see the MANAGE section) and only 50 of these were new “UP” signals (14%). As a result, there were over 6 new “DOWN” signals for every 1 new “UP” signal. Ratios like that are relatively uncommon at Hedgefolios and always give me reason to pause and do more analysis. In addition to the changes to stock signals, I also changed 13 ETF signals from “UP” to “DOWN”. Note that there were no new signals in the positive direction.

Lastly, if you look at the Hedgefolios Timing Indicator in the ANALYZE - MARKET STATISTICS section you will see that there was a crossover of the HF Bullish (Green) and HF Bearish (Red) lines. This has only happened three times in the past year and according to my methodologies, indicates that the market has a negative bias. I’ve been waiting for a crossover to post a more detailed description of this section and my market indicators - so look for one by tomorrow.

I am slowing down to reflect on the market’s yellow light… there’s a lot to analyze about geopolitics, oil, and interest rates.

I was out of the country on spring break with my family last week and other than doing the weekly signal update, I was a bit out of touch with the markets. There is nothing like isolation to help clear your mind and return some proper perspectives (though the sun and sand doesn’t hurt either!) Without the saturation of repetitive financial “news” stories trying to disect every move of the indices, the break gave me a chance to generate some new article ideas and work on a few that I have been researching.

Unfortunately, every vacation has to come to an end and when I got back to work this weekend on the signals, I felt like saying “Give me a break.” Putting it simply, last week was the most destructive I have seen in many months. There’s nothing like the double-team of higher oil and higher interest rates to put pressure on the market and for geopolitical / US politics to make it worse. The move was broad based and while interest rate sensitive stocks were hit harder than most, I saw very little concentrations in size or style categories. It was an equal opportunity bashing as strong stocks got weaker and weak stocks got weaker.