A Boost from the Fed?
By Paul Cherney
Monday was a light-volume day partly due to the summer vacation season and also, perhaps there was some reluctance to trade ahead of the FOMC meeting on Tuesday. I think the Fed will make the 25 basis-point rate hike, but after Friday's weak nonfarm payrolls data, the Fed might ease the wording in the post-meeting statement and that might prompt a little buying for stocks. If oil prices could ease and the Fed can ease its language, some upside on Tuesday would be natural.
On Tuesday, the Fed meets. More often than not, the trading on the day of the announcement is relatively flat and boring until about 30 minutes before the announcement. On the trading day of the last Fed announcement (June 30), the markets knew the Fed would raise, and the markets rose for the session, but then started down for the summer downtrend on the very next day.
When I see the deep levels of negativity I saw during Friday's session, I expect two things to happen: 1) an oversold bounce on the following trade day (that was Monday and there wasn't much of a bounce); and 2) the bounce fails to attract sufficient follow-through buying (no initial trend higher), and then, over the next few trading days (sometimes even longer than just a few trading days), prices have to have a close lower than Friday's closes and there might have to be an extended period of basing with a negative bias.
Immediate S&P 500 support is 1,063-1,031, with a focus of support 1,060-1,046.
The Nasdaq support is 1,776-1,600, with a focus at 1,745-1,675. Technically, the Nasdaq had a close under Friday's close, but the pattern usually has some sort of a lift in prices first, so I am still expecting some upside.
Immediate resistance for the S&P 500 is 1,069-1,075, 1,086-1,092, then 1,103-1,109.30, 1,114-1,119.60, stacked and overlapped at 1,118.56-1,122.37.
Immediate resistance for the Nasdaq is now 1,793-1,806.28, overlapped at 1,783-1,815, making a focus 1,783-1,793. Next resistances are 1,831-1,843.05, 1,848-1,864, 1,874-1,880.81.
Any time resistances are exceeded they must be treated as supports until proven otherwise. Any time supports are undercut they must be treated as resistance until proven otherwise.
Cherney is chief market analyst for Standard & Poor's