Market Timing Following the Much Anticipated Yellen Speech

Most major U.S. stock market averages gave up ground grudging last week from record highs posted the previous week. Friday, August 26th, was the most volatile day as traders and investors reacted to fresh comments from Fed Chair Janet Yellen. By most accounts, Chair Yellen's comments were mixed (neither too hawkish nor too dovish). 

According to Yellen:

The Federal Open Market Committee "continues to anticipate that gradual increases in the federal funds rate will be appropriate over time to achieve and sustain employment and inflation near our statutory objectives."

She added, "Indeed, in light of the continued solid performance of the labor market and our outlook for economic activity and inflation, I believe the case for an increase in the federal funds rate has strengthened in recent months." 

And if the economy falters, Yellen said the following:

"In addition to taking the federal funds rate back down to nearly zero, the FOMC could resume asset purchases and announce its intention to keep the federal funds rate at this level until conditions had improved markedly — although with long-term interest rates already quite low, the net stimulus that would result might be somewhat reduced."

Something for everyone, bulls and bears alike!

My computer trading system may offer some clues right here to the next major move in stock prices. While the preliminary "rare" monthly chart sell signal in the S&P 500 Index that was triggered in the week ending June 24th was aborted by a spectacular rally the following week, we now have a confirmed weekly chart sell signal in the NY Composite Index for the week ending August 26th (see chart below). While weekly chart sell signals have not been triggered in any other major index, the sell signal in the NY Composite Index is noteworthy.

In 1987, the year of the great October crash, the high for the year in most major stock indexes was posted on August 25th. Seasonals are mostly negative over the next 8 weeks (late August through mid-October), which tends to support the bearish case here.

NY Composite Index Weekly Chart with Computer-generated Buy & Sell Signals

NY Composite Index Monthly Chart with Computer-generated Buy & Sell Signals