An FOMC Rally Failure?
Stocks put in a solid performance on Tuesday with the S&P 500 up 0.57% as advancing stocks led the decliners by almost a 2-1 margin. The DAX Index was also higher by the close but it has given up those gains in early Wednesday trading. The Dow Transports were lower again as they lost another 0.33%.
The rally has caused some short term improvement in the daily technical studies as discussed below. The futures are showing solid gains as the market waits for this afternoons FOMC announcement. The debate over when the Fed might raise rates has been moving the markets for the past year and often stocks have rallied sharply after past FOMC announcements.
This may also be the case today as this week’s economic data has been mixed. The Empire State Manufacturing Survey along with Industrial Production were weaker than expected but the Housing Market Index beat expectations. On Thursday we get the all important Leading Economic Indicators which continues to signal an improving economy.
So what should you be watching as stocks once again try to move higher?
Chart Analysis: The broadly based NYSE Composite again tested support at line a, on Monday before Tuesday’s higher close.
- The declining 20 day EMA is at 11,049 with the daily starc+ band at 11,174.
- The major resistance still lies in the 11,250 area with monthly pivot resistance at 11,384.
- The NYSE A/D line did not make a new high with prices on May 21st, line b.
- This divergence was confirmed by the drop below the April lows.
- The A/D line is now trying to bottom out (line c) but the declining WMA suggests a failing rally.
- The McClellan oscillator has formed significantly higher lows (line e) and could rally back to resistance at line d.
- A drop in the NYSE Composite below 10,882 would reassert the downtrend.
The low in the Spyder Trust (SPY) Monday was $207.79 which was not far above the monthly pivot support at $207.34.
- On recent lows the SPY has managed to close above the chart support at line f.
- A break of these lows will suggests a drop to the $204.50-$206 area.
- The S&P 500 A/D line made lower lows on Monday, line h, which is a sign of weakness.
- The break of support, line g, in early June turned the focus on the downside.
- A rally in the A/D line could test the former uptrend.
- The OBV has recently formed higher lows but the longer term downtrend, line f, is negative.
- The 20 day EMA is at $210.57 with last week’s high at $212.09.
- A move above this level should squeeze the shorts with the daily starc+ band at $213.58.
What it Means: It the market can close higher today after the FOMC announcement then the strength could continue through the end of the week. The quadruple witching on Friday will increase the volatility and may stall the rally. The daily indicators show no signs yet that the correction is over so lower prices are likely next week.