It’s Not What The Fed Does
On Tuesday, the Nasdaq lapped lower and chopped
around. Then, by late morning, it mounted a decent rally and ended the
day closing well.
Overall, it still looks like a big picture
topping formation. However, if we can get above 2100/the 50-day moving
average and stabilize, then I’d be willing to re-evaluate.

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The S&P tailed
lower towards the well–watched
1200 level, but not only survived, reversed and rallied to close well.
Longer-term it still looks like a topping formation here, too. Shorter-term
it looks like a trading range between 1200 and 1240. Like the Nasdaq,
if it can get above its recent range/the 50-day and stabilize then it
too would look much better.

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One thing
interesting, but not surprising, is the fact that the Q’s (QQQ)
are now on the Explosions
List. This is due to the pre-Fed narrow trading range (b) as
confirmed by low volatility readings (a). As you know, lower-than-normal
volatility suggests that a larger-than-normal move is imminent.
Wednesday’s announcement from the Fed will likely be the catalyst to
return volatility to more normal levels. This may be enough to knock
it (and the Nasdaq 100) out of its range and give us a clearer picture
about where this market is headed longer-term.

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The question on
everybody’s mind is how much, if any, will the Fed cut rates,
and
what will be their bias? Actually, this doesn’t really matter. It’s
the reaction to what they do that matters. My guess is we’ll probably
have a few knee jerks in both directions until the real trend sets in
on Wednesday. After that, we’ll have to take it day by day.Â
So what do we do? Again, there’s no need to jump
in on either side of the market ahead of the Fed. Wait for all the
gyrations to take place and then and only then consider taking
positions.Â
Looking to potential setups, Elan Corp. (ELN),
mentioned Monday night, appears to be resuming its uptrend out of a
pullback.
King Pharmaceuticals (KG),
on the Pullbacks
Off Highs List, appears to be finding support near the area of its
last breakout (a). Further, it reversed Monday’s sell off and closed
well on Tuesday (b). This action sets up a Cooper 180 and suggests
that the stock’s uptrend remains intact.

On the short side,
Digital Lightwave (DIGL),
on the Trading
Where The Action Is List, looks like it has the potential to
resume its meltdown out of an inverted cup and handle. Just wait for
follow through to the downside here as it did close well on Tuesday.
Best of luck with
your trading on Wednesday!
Dave Landry
P.S. Reminder: Protective stops on
every trade!
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