This week, it’s all about the Fed

  • May 8, 2006
  • Chris Curran


The major indexes finished higher last week amid
further optimism of the Fed pausing. The equities markets starting
the week by rallying Monday, but suffered a downside reversal when CNBC
irresponsibly reported that Fed Chair Bernanke suggested he was misunderstood at
last week’s testimony.  However, there was little in the way of downside
follow-through on Tuesday, which allowed the bullish camp to again rebuild hopes
of the Fed pausing.  A weaker-than-expected Employment report on Friday
triggered a sharp move higher that seemed to be based on the belief that the Fed
will announce they plan to pause as early as Tuesday’s FOMC meeting.  Technology
shares underperformed once again, as market players continued to favor selective
blue chip names.  This allowed the Dow and S&P 500 to breakout to fresh
multi-year highs.

This
week will be all about the Fed, as the FOMC meeting is scheduled for Tuesday. 
Overall, the markets now appear to be expecting a rate hike followed by language
which indicates that the Fed plans to pause.  Anything less than decisive
language about a pause likely won’t be taken well.  Because of the elevated
level of commodity prices and the strong growth globally, it could be a stretch
for the Fed to commit to a pause.  Furthermore, recent data has also indicated
that inflation could be making its way into wages again, which makes it even
tougher for the Fed to limit future rate hikes.  It’s also important to note
that just because possible language is provided that leans towards a pause, that
doesn’t mean we have seen the last of the Fed during this tightening cycle.  If
Greenspan and Co. is any meter to measure by, Bernanke and his band of merry Fed
governors aren’t even close to being done.  Also, with how well the major
indexes have acted recently, a possible dovish Fed statement could be largely
discounted already, and we could see a “sell the news” scenario.  Stay tuned!


                           

Daily
Pivot Points for 5-8-06

Symbol Pivot       R1 R2 R3 S1 S2 S3
INDU 11534.91 11629.21 11680.67 11774.97 11483.45 11389.15 11337.69
SPX 1322.07 1330.22 1334.68 1342.83 1317.61 1309.46 1305.00
ES M6 1325.50 1334.75 1340.50 1349.75 1319.75 1310.50 1304.75
SP M6 1327.37 1332.73 1336.57 1341.93 1323.53 1318.17 1314.33
YM M6 11557.67 11652.33 11708.67 11803.33 11501.33 11406.67 11350.33
BKX 112.99 113.65 114.02 114.68 112.62 111.96 111.59
SOX 528.86 532.30 535.65 539.09 525.51 522.07 518.72

 

Please feel free to email me with any questions
you might have, and have a great trading week!

Chris Curran