Outlook For Fed Day

Happy Fed Day. Markets have been rocky since peaking just after Thanksgiving from overstretched levels. Oil and the energy complex have been leading the market lower of late. Despite a few violent spikes to the upside that quickly dissipated, the market has trended lower with consistency, forming a well defined downward trending channel.

S&P 500, 3 minute bars

S&P 500, 3 minute bars

In retrospect, which is always 20/20 of course, the distinct head and shoulders formation in the S&P in the first week of December proved to be a timely indicator of an impending breakdown. The break below the lower orange trendline on December 9th provided confirmation of the breakdown which was unable to recover and move above the support turned new resistance level.

S&P 500, 10 minute bars

S&P 500, 10 minute bars

As the downward move has developed, its taken us back below the psychologically important 2000 level.

S&P 500, hourly bars

S&P 500, hourly bars

2000 was significant not only for its big round number value, but also as the current level of the 50 day moving average. As of the close of trade yesterday, the 125 day moving average at 1984.50 has been broken as well, opening up the way to the closely watched 200 day moving average at 1947.

S&P 500, daily bars

S&P 500, daily bars

While oil and the Russian ruble will be closely watched in coming trade, the most significant market moving event will be the Fed rate decision and Fed Chair Janet Yellen’s first press conference since September. The market will be looking for clues as regards the highly anticipated rate hike. While no major Fed action is anticipated, the language of the announcements and market’s perception of Fed forward guidance still remain unknown and a major wild card. Its impossible to know how the markets will react.

In the meantime, we have to watch our levels and wait. Good luck out there.

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