Courtesy of Doug Short.
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In truth, the adage “It’s more important to watch a person’s actions rather than listen to his words” probably arose from man’s tendency to do the opposite and suffer the consequences. But when considering the correspondence our Federal Reserve Bank has with us as investors, I’m convinced it’s imperative to listen to Fed Chair Yellen’s words.
At this juncture the Fed realizes investors are closely monitoring Fed statements and adjusting their portfolios accordingly. The Fed clearly understands its influence in the current marketplace. When the Fed says jump investors seem to say how high. This clearly illustrates the confidence most investors have in our Fed. It’s those who are not confident, the top-pickers and naysayers of this market that are having trouble with it. I know because I was one of them. I initially could not fathom how one fixes a problem arising from too much debt by taking on larger debt, and I remain skeptical about any “happily ever after” endgame scenario to this financial crisis. But where I differ from my former self of 2009-2011 is I have returned to my roots – trend following. ‘Sell in May and go away’ hasn’t panned out. Should we “not buy in July,” or wait for the October bust? I have no idea and can’t guarantee anything other than like a rebellious adolescent the market will go where it wants; and right now the trend is up.
But let’s get back to Janet Yellen’s words. Although many are focusing on her comments about some sector valuations being stretched, her following comment made during the recent Q&A was most meaningful to me. She stated, “There’s no formula and there’s no mechanical answer that I can give you about when the first rate increase will occur.”
That is the issue investors are focusing on, and the Fed has become a master in PR. It’s in the back of many minds that Fed accommodation has largely been responsible for the bull market in stocks. Investors are skeptical of any further rally if the Fed begins to raise rates. Do you agree? I think the Fed believes this wholeheartedly. So what does Chairwoman Yellen do? She front-ran any front-runners by announcing “there’s no mechanical formula.” Genius, I tell you. Just as everyone has become accustomed to closely watching inflation and unemployment levels, BAM – forget about it. What do I think of all this – listen to what she says. I wouldn’t speculate a single penny on when the Fed might begin raising rates.
At any rate, here’s a follow-up chart I’ve been monitoring. It’s a weekly bar chart of the Philadelphia Semiconductor Index. Its current bull trend dating back to late 2012 is evident. Markets pulled back on Thursday afternoon. If the 560.00 – 600.00 level holds over the next several weeks, the set-up might be for a testing of the next major resistance area up at 760.00, which is the 50% Fibonacci retracement of the tech-wreck break.
Philadelphia Semiconductor Index 
In conclusion, I have sympathy for the plight of the naysayers. It’s clear there exists a disconnect between the economy and the market. But I feel most investors remain confident in Fed policy, and as long as that’s the case, and as long as interest rates remain low and stable, I believe it’s extremely difficult for the market to experience any major setback. Finally, charts are factual and the one presented confirms the bull trend in the semiconductor sector.
Dominic Cimino
Chief Investment Strategist
Financial Advisor
Preferred Planning Concepts, LLC
2800 South River Road #240
Des Plaines, IL 60018
Registered Representative, Securities offered through Cambridge Investment Research, Inc., a Broker/Dealer, Member FINRA/SIPC. Investment Advisor Representative, Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Preferred planning concepts, LLC & Cambridge are not affiliated.
© 2014, Dominic Cimino of Preferred Planning Concepts, LLC (You can explore the services offered by Preferred Planning Concepts by viewing us on our website at www.ppcplanning.com) Any redistribution, reprinting, or reference to this chart or content is allowed so long as reference to the author and source is acknowledged.
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