Waiting for Greenspan
We’re on the sidelines of the S&P market this morning until after the Fed announcement. This morning, S&Ps were trading up 150 points at 1508.30. Extremely light volume has traded, as everybody is sitting tight until after the Fed announcement, which is expected around 1:15 p.m. Central.
Typically, the market has traded higher before the announcement, meaning we could have a rally in the morning that would take us into the high teens. But beware, as this will be a morning of no volume and very “whippy” price action.
We see resistance essentially from 1510.50 to 1520. Severe pockets in this zone are 1522.50 to 1525, 1510.50 and 1512.50, and 1518 to 1519.50. As usual, the market’s reaction may not be seen for a day or two. On the downside, we still view 1498 to 1500 as a critical area. If there is a surprise announcement that the market does not like, expect this area to be broken and look for a run to 1480. We have support between 1482.50 and 1480.
On the way down, 1505 to 1503 is support, also 1492.50 to 1490.50 and 1487.50 to 1486, followed by our target. Our Morning Pivot will be 1502.50 to 1503.50, although we would caution against being active traders this morning.
Despite all the “favorable” news we’ve been receiving on the inflation front, the market is still discounting the possibility of another rate hike in the next 6-9 months. This reflects nervousness about whether or not the economy may rebound in coming quarters — especially in light of what’s happening in the energy markets…NASDAQ again failed yesterday to take hold of some very bullish news on INTC — just as we saw with Cisco
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PowerRating) last week. This suggests that we are “not out of the woods” yet, and traders should be aware that the light volume we are experiencing tends to distort the moves. NASDAQ was trading about 700 points at 3865. Note: there was substantial trading yesterday between 3880 and 3890. This price area was dominated by the institutions. The market has a way of going back to test or retest these areas. We have this pegged as resistance, and will carry this resistance from 3880 to 3910. If we get above 3910, 3950 should be reached, and above that, we don’t think it will take much for a 4000 print. The feeling seems to be that the more-bearish players will defend the 3900 area and not the 4000. After the Fed, it’s anybody’s guess. If it’s a bullish response, we may settle above 4000. On the highest upside levels we’d be surprised to see anything exceed 4050.
On the downside, support is between 3820 and 3800, then 3790 will act as a downside pivot. Below that we should test 3750, probably on our way to 3710, then to the 3690 zone. Yesterday was a wild day in the SOX index, as rumors were rampant about a poor book-to-bill ratio coming up, and a mid-day analyst call that was negative on the sector. However, the index did regain a large part of its strength by the end of the day. Traders need to keep their eye on this index over the next few sessions.
For the Dow, good performance by the financials continues, and we still have the same feelings. We’re looking 11,400 in the cash with good support between 10,960 and 10,950.
If we have a bearish response to the Fed, the financial sector could be hit extremely hard. We feel this way because there is no doubt that this sector has been bid up in anticipation of a completion by the Fed of its rate-hike policy.
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