A Clear Fed Action Still Lends Little Clarity to the Market

Tuesday's hike may be a sure thing, but divining the market's twists and turns is anything but.
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Rapper's Delight

Tuesday's meeting between Master G (a.k.a.

Alan Greenspan

) and the

FOMC

Gang (a.k.a. the

Federal Open Market Committee

) is the most widely anticipated event I can remember since Geraldo Rivera opened Al Capone's vault. Even though the rate rise is as close to a sure thing as me watching

The Sopranos

on Wednesday nights, it doesn't make the environment easier to work with.

Here's why:

Laggards are leading and leaders are lagging.

By itself, this is not bearish, but it's not bullish either. It's unlikely that the market will move substantially higher with coal, gold and steel stocks leading the way. I'm not trying to say these stocks shouldn't be improving -- after all, there's a lot of corporate activity being announced. I'm saying it is very unusual that coal, gold and steel would be the sectors pushing the market to higher ground. Say it fast: coal, gold and steel. Doesn't feel right, does it? Sounds like the stuff the Grinch puts in your Christmas stocking after he takes all the good stuff out.

The dollar is in a bear market vs. the yen.

I know, I know: All the economists say that a weak dollar doesn't matter because it'll be good for our exports. I may be no economist, but I don't see how a weaker dollar can be good for the U.S. Just last week, everyone got all crazy about the dollar's recent weakness vs. the yen. But the fact is that the dollar has lost 31% vs. the yen during the past 12 months. That's a bear market vs. the yen, and there has to come a time when the dollar's weakness must matter. Furthermore, the 110 level for the dollar/yen is crucial support, and if it breaks, 100 follows and a possibility the dollar falls to ... Oh, I don't even want to think about it.

Fewer and fewer stocks are breaking out.

Last week, I wrote I was sticking exclusively to breakouts because the market is not bullish right here and this tactic reduces risk. Well, it's one thing to stick to breakouts, but it's another to be unable to find them altogether. That's a slight exaggeration, but except for energy and biotech/medical devices -- which are generally bullish from large-caps through small -- there aren't many sectors pushing to new highs.

Though individual stocks will always be breaking out of bases or consolidations or moving to new all-time highs, it is much easier and more comfortable if this action is occurring within a strong group. Like when

Biogen

(BGEN)

moved to an all-time high in late June and the

Amex Biotech

index was similarly strong. In other words, if the group is strong, it's more than likely that a rising tide will lift all boats.

What do I think?

As I said last week, the market gets the benefit of the doubt, unless all of the following four things happen:

    But if Citigroup can't get out of its own way, then I'm sure you'll hear lots of stories about how hedge funds are shorting U.S. banks and buying Japanese banks. I've been working on this idea since mid-June, and a basket of Japanese financials has been the Secretariat to the U.S. financials field in the 1973 Belmont Stakes. (You remember Secretariat's 31-length win, don't you?) I'm guessing the Japanese financials in general, and banks in particular, continue to outperform.

Treasury bond futures close under 113 9/32. Last week, I wrote that it was likely the bond had bottomed as it had embraced the lower-than-expected Producer Price Index numbers. Well, the bond also embraced the Consumer Price Index data last week, and it took the dollar's action on the chin like a champ. Upside targets are another story entirely, but the bond has been solid of late, and this is a plus.

My bellwether, General Electric , which is still strong, closes under 100.

Citigroup closes under 40. The press has generally reported that the proposed merger of Dai-Ichi Kangyo Bank, Fuji Bank and Industrial Bank of Japan to create the world's largest bank ($1.32 trillion in assets) will not present a terribly important competitive threat to major American or European banks. This may be the case if Citigroup is able to push to an all-time high and the rest of the sector improves, too.

The S&P 500 closes under 1275.

Heads up on:

  • Improving drug stocks. It's too early to call the sector bullish, but I'm guessing some of the improvement here has to do with the stability in the bond market.
  • Deteriorating phone stocks. This number's been disconnected.

John Roque is the technical analyst at Arnhold & S. Bleichroeder, a New York-based investment brokerage firm specializing in Europe and the U.S., and a frequent guest on CNBC. At time of publication, Roque had no position in any of the securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Roque appreciates your feedback at

jroque@thestreet.com.