SHORT TERM: market loses its early gains after the FED statement.
Stocks opened mixed this morning, and after vacillating around SPX 1505 for a couple of hours it started to move higher. Nearing the FED’s economic report card the SPX hit 1513. At 2:15 the FED reported to leave interest rates as is, pending the usual further incoming data. However, the tone of the report sounded a bit less accommodative.
"Economic growth appears to have been moderate during the first half of this year, despite the ongoing adjustment in the housing sector. The economy seems likely to continue to expand at a moderate pace over coming quarters. Readings on core inflation have improved modestly in recent months. However, a sustained moderation in inflation pressures has yet to be convincingly demonstrated. Moreover, the high level of resource utilization has the potential to sustain those pressures. In these circumstances, the Committee’s predominant policy concern remains the risk that inflation will fail to moderate as expected."
The market responded with its usual volatility. Only this time it was swinging 6-8 SPX points about every 20 minutes. Within the first few minutes after the news release the SPX hit 1515. That was the high for the day. Then the market pulled back into the close. Bonds were about 1/4 point lower, Crude was up 70 cents, Gold rallied $7.00, and the Euro was higher. At the close the SPX/DOW were 0.05% lower, and the NDX/NAZ were mixed. The SPX held support today at 1505, now resistance is at 1522, and lower support at 1493. Short term momentum was quite overbought today, and has now pulled back to neutral. The continuation of yesterday’s rally off the double bottom, still looks positive short term. A FOMC meeting is usually a two day "volatility" event, expecting more of the same tomorrow.
Since the Techs continue to support the market, we decided to make a closer examination of the NDX/NAZ. Our initial view was that the uptrend has continued, despite the downside pressure in the cyclicals. The NDX/NAZ continued to make higher lows, while the SPX/DOW were heading lower. However, upon closer examination of the rally from the end of May lows, wave 4. A potential diagonal triangle wave 5 might be unfolding. This market is certainly full of land mines! This potential rising wedge is illustrated in the NDXdaily chart below. If the NDX can break through the upper trendline solidly, then the entire market could enter an uptrend extension. If the lower trendline is seriously broken to the downside, the correction we have been anticipating should be underway. It would be an interesting alternation of events, if the NDX formed a diagonal triangle while the SPX was trying to break down. During the last uptrend it was exactly the opposite, exactly. This market is certainly an interesting exercise in probabilities. Best to your evening!
MEDIUM TERM: remaining neutral
LONG TERM: bullish.