FOMC Post-Mortem
Stock index futures
opened Tuesday’s with
gaps to the upside ahead of the FOMC meeting. The ES traded in a
slow, descending channel that finally broke sharply around noon as the contract
breached its Daily Pivot and all but filled the opening gap. Position-squaring
ahead of the Fed report brought the futures back into a quiet range. A slight
change in the language of the Fed’s policy statement with regards to the labor
markets led to fast, whippy market conditions as the market’s range contracted.Â
At the end of January the FOMC said “although new
hiring remains subdued, other indicators suggest an improvement in the labor
market.” Today, the policy statement argued that “although job losses have
slowed, new hiring has lagged.” It was a
small change, but when it comes to the Fed, anything they say is subject to wide
interpretation. The range contraction gave way to heavy broker selling that
tested Monday’s low 3 times. The inability to break support forced the shorts to
cover and the futures were able to make back the lion’s share of its gains in
the last hour.
The June SP 500 futures closed
Tuesday’s session with a gain of +5.25 points, and finished in the top 1/2 of
the daily range. Volume in the ES was estimated at 874,000 contracts, which was
behind Monday’s heavy pace, but still above the daily average. Looking at the
daily chart, the ESM posted a dragonfly doji and has held its 100-day MA after
testing it 3 times, but the contract is “backing and filling” here to work off
its oversold condition. A close back above 1121 is going to be needed to temper
the near-term bearishness. On an intraday basis, the 60-min chart is contracting
into a descending triangle but has 30-min and 13-min support at 1108 to contend
with.
June bonds posted a key
reversal up that led to a close above the 62% retracement of last year’s decline
at 115-08. A close above last Thursday’s high at 116-01 would confirm the
breakout. The Banking Index (BKX) closed back below its 50-day MA, and settled
just above last week’s low at 988. The SOX broke last week’s low, and aside from
minor daily support at 468, the index looks like it wants to test its 200-day MA
at 460. The SOX hasn’t touched its 200-day MA since it broke through it from
the south side in 3/03.Â
Wednesday morning gives us the
February CPI (I guess they didn’t lose the formula for it like the PPI) with a
consensus for a 0.3% increase. With options expiration approaching and most of
the index-driven calls under water, I’ll be looking for more choppiness with an
upside bias to finish the week.
Happy St. Pat’s Day!
        Â
Please feel free to email me with any questions
you might have and have a great trading day tomorrow!