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Stocks Face Continuing Volatile Conditions

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Stocks Face Continuing Volatile Conditions

Stocks started the trading session in the black, despite the 2% decline in the Nikkei which has put the Asian index into correction territory. The earnings parade will continue this week, as earning have been a pleasant surprise. With nearly 50% of the S&P 500 companies already releasing results, more than 72% have exceeded forecasts. At 10 AM EST the Institute of Supply Management released its manufacturing report which turned the markets upside-down. For the day all three major averages finished near their lows down nearly more than 2%.

On Monday the Institute for Supply Management reported that its manufacturing purchasing manager’s index for January slumped to a reading of 51.3, its lowest reading since May, though still indicating an expansion of activity. The metric missed a projected 56 and marked a drop from December’s 56.5.

Janet Yellen was sworn in as the first Chairwoman of the Federal Reserve, becoming a key figure for the global capital markets. Yellen is seen as a monetary policy dove, but she starts as Fed chief at a time when the bank has started to taper its QE program and prior to a decision about if and when to raise interest rates. Yellen is also quick to pull the trigger to pierce any possible market bubbles, which could generate unwanted volatility. At the Fed’s last meeting in January, the FOMC reduced its bond purchases by 10 billion a month and most believe the central bank will continue the process in March. The Fed is focused on removing the stimulus of QE which will generate headwinds for equity bourses.

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The S&P 500 index broke through support levels as negative momentum continued to climb. The MACD is printing at its lowest levels since August, while the RSI is printing near 31, which is nearly oversold levels.

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