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The Momentum Tell and the Yellen Timeline

By: Nicole Urken | 04/10/14 - 02:47 PM EDT

NEW YORK (TheStreet) - Talk about whiplash. Yesterday's surge upward was met today with, well, a selloff.

First off, much of this has been driven over confusion about the Fed, particularly in the vacuum between earnings seasons that we have experienced. First, on March 19th, Fed Chair Janet Yellen spooked the market via confusion, by suggesting that there would be a six month gap before rate increases after quantitative easing ends. Now, Yellen made an effort to clarify her remarks at a Chicago speech on March 31st, but ultimately many still questioned just what the Federal Reserve's strategy would be.  Now, yesterday, the market rose significantly on the Fed Minutes from that fateful March meeting. Now we know that the Fed actually met ahead (on March 4) of their last policy meeting to debate how and if to alter the guidance on short-term interest rates and that the agenda did not contemplate any policy decisions.

In response, we got a surge in many of the momentum names that had been pummeled, including names like FireEye (FEYE), ServiceNow (NOW), and Celgene (CELG). We saw outperformance in healthcare--led by a bounceback in biotechs-- along with industrials and materials. Even financials were up as part of the cyclical rally, despite the higher certainty of lower rates. Why? More hope for loan growth and fee-based businesses.

Today? Another sell off, hitting the key momentum names. The underperformers of yesterday, the utilities, are leading the market today. Pressure today continued from liquidation at hedge funds, not to mention continued global uncertainty and higher appetite for high quality companies with strong dividends.

Ultimately, the momentum names have been key to following the market--whether they be the speculative biotech names, the cloud-based technology names, or the social cohort.

So what to do? Are these opportunities, or is buying now equivalent to catching a falling knife?

Answer: The fundamentals of many of these companies are unchanged. Even the large cap biotechs like Biogen (BIIB) that have some case-specific issues surrounding pricing ultimately have not seen their stories changed. But we will be in a house of pain until we start getting some positive earnings numbers with strong outlooks. It all comes down to earnings season which is just kicking off ... to see if we can turn around this onslaught of selling.

PS: Remember, the market as a whole-- despite much volatility--has done quite well. A "much ado about nothing" market.

--Written by Nicole Urken in New York.

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