Waiting for the Fed

Any interest rate cut rally would likely be short lived

By Paul Cherney

The Fed announces its decision near 2:15 p.m. on Tuesday. Unless the statement accompanying the rate change is blatantly aggressive in terms of additional easings, I would imagine that the most the market could get out of the rate cut would be a one-day rally.

In the past couple of FOMC meetings, the initial movement (up or down) in the first couple of minutes after the announcement has proven to ultimately be the direction for the close of trading, but there is usually an intraday retracement of that initial move before it re-establishes itself into the close. Virtually everyone expects a 50 basis point cut so if the Fed only delivers 25 basis points, some swift selling would follow.

This is options expiration week and what happens on Tuesday often can see a counter move on Wednesday. The look of the charts has not changed: The NASDAQ and the S&P 500 appear to have established ceilings for a trading range caused by valuation concerns and the lack of significant improvements in earnings. The downside should be limited by the fact that the Fed has been in easing posture.

The NASDAQ has established a well-defined wall of resistance in the 2187-2233 area. This is part of the broader band of resistance 2174-2233. The next layer of resistance above 2233 is directly overhead in the 2242-2356 with a focus of resistance 2253-2310.

Monday's move below 2148-2088 now makes that level the first barrier to an advance. There is a hefty layer of support in the 2074-1995 area. If, and that's a big "IF," the NASDAQ were to test the 2011-1980 area, it would probably generate a swift reversal and a lift fueled by short-covering and bargain hunting. Right now, downside risk still appears limited to a retest of the 1995 area. The next layer of support (under 1995) is 1962-1868 with a focus 1939-1895.

The S&P 500 has immediate closing resistance in the 1253-1273 area. The next resistance is 1300-1341. Immediate support remains 1238-1223.

Paul Cherney is Market Analyst for Standard & Poor's