FOMC Preview
Stock index futures opened the new week with a downside
gap after mixed economic data overshadowed positive earnings comments
from GE and upgrades of 3 other Dow components. After a weak attempt to fill
1/2 the gap, locals became bold sellers, and aside from pockets of broker
buying that provided bear flag retracements throughout the morning, the
downdrafts came on heavier volume. The contract found support off of S2 just
off 1104 and found a bid on the Dollar’s weakness after news hit the wires that
the Bank of Japan was considering not supporting the Dollar anymore. The
oscillation range broke in the last 45 minutes but the futures were able to chop
their way back above S2.
The June SP 500 futures closed
Monday’s session with a loss of 13.00 points, and wiped out Friday’s gains.
Volume in the ES was estimated at a very heavy 1.037 million contracts, which
was ahead of Friday’s pace, and almost double the daily average. Looking at the
daily chart, the ESM gave a 2nd test of its 100-day MA and Friday’s Globex low
around 1101. On an intraday basis, it was deja vu all over again as the 60-min
and 30-min charts lost support to form inverted cups and handles. A reversal
through 1110 is needed to break the downtrend.
The Banking Index (BKX) closed
back below its 50-day MA, and settled just above last week’s low at 988. The
Dollar Index (DXC) posted an inside lower close as it continues to base along
its 100-day MA support. 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.
Tuesday gives us a FOMC meeting
and announcement at 2:15 pm ET. Short-term rates are expected to be left alone,
but there will be a little more emphasis put on the Fed’s policy rhetoric for
any hint that a rate hike may be coming sooner rather than later. I would
expect volume to taper off after the first 2 hours, and as always, be flat ahead
of the news. I’ll most likely take the time to work on my upcoming educational
trading module.
Flexibility
We all think we are
flexible. We think we are detached and able to adapt to the given situation. The
reality of how flexible we are at times can cause a rude awakening.
When the market takes an almost vertical dive after a major news announcement,
you find out the true level of your detachment from your trades and your true
willingness to go with the market, rather than to be right. At what point do you
recognize that the market is trending down strongly? At what point do you align
yourself with the market, not only mentally but trade-wise as well? If you are
long, how long does it take you to get out, and go with the move? At what point
are you aware that this is no ordinary downdraft? At what point do you stop
hoping for a bounce so you can exit? At what point do you stop trying to buy a
declining market? At what point do you stop saying to yourself, “it has to turn
around?” If you are flat going in, at what point do you recognize the
opportunity, yet not act? How long does it take you to act? Are you able to act?
Recognizing the truth is not the same thing as being active to the truth. Being
active to the truth requires action to align your trade to what the market is
shouting at you. The time between your recognition and your action is the level
of your flexibility.
Please feel free to email me with any questions
you might have and have a great trading day tomorrow!