Market Goes Into Holding Pattern Into Fed

Today's Commentary:
Note: Current contract month for the futures is now September.

Market Goes Into Holding Pattern Into Fed

(Note: Unless otherwise stated, the index action described below relates to the EMini futures contracts for the respective indices. Actual index action may differ slightly in terms of pattern formation, although the market bias will remain the same.)

Good day! The market didn't make it very far in Tuesday's session. Wednesday brings with it the conclusion of a two-day FOMC policy meeting and the indices went into a holding pattern throughout most of Tuesday's session with rather choppy trade. The opening action was still pretty decent, however, with stronger 5 minute follow-through.

The index futures held a trading range along lows in afterhours and premarket trade between Monday and Tuesday's regular trading sessions. The range broke lower around 9:00 am ET on Tuesday morning to trigger a strong wave of selling into the opening bell. The market found initial support at the 9:45 ET correction period, but the indices dropped again when the National Association of Realtors reported that existing-home sales were off 3.2% from a year ago. They rose 2.4% in May, but the number was lower than had been expected. This took the three major indices into new lows on the day and took the Nasdaq Composite into its 50 day simple moving average support.

Dow Jones Industrial Average ($DJI)


The selling out of the home data was a lot stronger than average. Despite the extended 60 minute charts on the downside, the market needed to shift the pace in order to create any decent upside potential. The market achieved this by forming a series of slightly lower lows between 10:15 and 11:15 ET. The 11:15 ET correction period held well with the market establishing three lows on a 5 minute time frame with each new low slightly lower than the last. When the channel from this pace change broke higher coming off the third low it created a strong buy setup.

The market moved steadily higher into the level at which the pace began to shift after 10:15 ET. This price resistance hit at the same time at the 15 minute 20 period simple moving averages in the three major indices, and it also corresponded to the 12:00 ET correction period. The market did not correct far, but the market still came back into the 5 minute 20 sma zone. The choppy action then took over. The indices paced themselves higher with slower overall upside than the initial bounce off lows.

S&P 500 ($SPX)


The channel break triggered a small scalp, but the market was unable to shake the choppy action into the closing bell. The indices held their 15 minute 20 period simple moving average zones throughout the afternoon trade and the indices experienced extreme overlap from one bar to the next on that same time frame. This created risk for strong flushes lower on a 5 minute, but the larger 60 minute has been rounding off at lows, so it will be more difficult to sustain larger downside moves even though there is no strong bias for buy setups at the moment either.

I'll be paying attention early on in the day on Wednesday, but things tend to slow down within a few hours on the day of the Fed and this can make trading past 11:00 ET on a Fed day more risky. Volume will drop off even more strongly into the early afternoon. Use extreme caution if you choose to trade at this time and even into the Fed announcement. Action will be volatile out of the news, but movements tend to be strong from a technical standpoint and follow-through well with expectations when patterns develop. The rates are expected to remain unchanged, so more attention will be focused upon the statement that accompanies the announcement for clues on future decision-making.

Nasdaq Composite ($COMPX)


The Dow Jones Industrial Average ($DJI) fell 16.10 points, or 0.19%, to close at 8,322.91 on Tuesday.The market was split well between gainers and losers. Top gainers in the Dow were Bank of America (BAC) (2.43%), JP Morgan (JPM) (+2.13%) and AT&T (T) (+2.11%). Top losers were Boeing (BA) (-6.36%) and Home Depot (HD) (-1.59%).

The S&P 500 ($SPX) rose 2.06 points, or 0.23%, and closed at 895.10. Crude oil futures closed higher at $69.24 (2.5%) a barrel.

The Nasdaq Composite ($COMPX) fell 1.27 points, or 0.07%, and it closed at 1,764.92 on Tuesday. Apple (APPL) did not perform well. It fell 2.5% and weighed the Nasdaq down.