As the world awaits the Fed’s decision on interest rates, this is what could really spell trouble…

From Art Cashin:  My friend and fellow market veteran, Jim Brown, the key operative at Option Investor summarized the feelings of many market players early in his overnight letter. 

Here’s a bit of what he wrote: 

The equity markets crashed at the open after crude prices collapsed to $47 on news Saudi Arabia, the leader of the OPEC production cut group, actually produced more oil in February than January. This is the country that bragged last month about how much they cut and how successful the production cut agreement was this time. The news shocked traders and everyone raced to the exits. Later in the day, Saudi Arabia said they were not exporting the oil but storing it for future use. That headline allowed crude to rebound to $48.50 and the equity markets recovered about half their opening losses. That six-day drop from $54 to $47 was – 12.9% and crude has now moved into oversold territory. 

My friends tell me (I was absent) Jim has the market interpretation and reaction down pat. They also note that there was a slight misinterpretation. 

While the Saudis did produce more in February than in January, the overall amount was below their “target” in the cutback. 

At any rate, the selloff and rebound were primarily factors of the morning trading.

The afternoon was somewhat placid as stocks traded in a narrow range, trying to pare the losses. 

Are The Small Caps Signaling Something? – For weeks I have been mumbling about this year’s relative underperformance of the smaller cap stocks. 

Overnight, the ever observant Jason Goepfert of SentimenTrader took note of this issue. Here’s a bit of what he wrote: 

Small-caps keep sagging. The Russell 2000 dipped into negative year-to-date territory on Tuesday morning, the first time in more than a month. It was saved before the close, but historically when the index has fallen into negative YTD territory in the early spring, it has led to more losses over the next month or so. 

So we’ll keep watching to see if the small caps are giving a warning or just pausing to consolidate. 

Overnight And Overseas – Equity markets around the globe are trading cautiously in front of a lot of looming headlines. There’s the FOMC and the Dutch election. The BOJ overnight, quickly followed by the BOE and the SNB. That has led to trading in narrow, almost indecisive ranges. 

WTI up above $48.50 and gold clings to 1200 by its fingernails. The euro rallies slightly against the dollar. The yield on the ten year is down a bit. 

Consensus – Fed statement at 2:00 and Yellen presser at 2:30. Dutch vote unlikely to be known before the close. Watch oil. A fall below $48 could spell trouble. 

Stick with the drill – stay wary, alert and very, very nimble.

***KWN has now released the remarkable audio interview with legendary James Dines and you can listen to it by CLICKING HERE OR ON THE IMAGE BELOW.

***ALSO JUST RELEASED: A Whole Lot Of Pain Is Coming CLICK HERE.


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