Fed Time Again

Strongly reassuring words on the economy from Greenspan & Co. on Tuesday would be bullish fodder for stocks

By Paul Cherney

We are in the quarterly earnings confessional season.

The Street expects the Federal Reserve to raise rates 25 basis points at its meeting on Sept. 21; if that happens, the new Fed funds target would be 1.75%. The wording of the post-meeting statement is probably going to be very similar to Greenspan's last assessment of the economy expressed during Capitol Hill testimony: the economy appears poised for more growth.

If the wording varies greatly from that tone (doubtful), then the equity markets will probably weaken. Usually, what the markets already know (or already have expected) usually does not hurt them, so a sell-off on the rate hike on Tuesday is doubtful, but strongly re-assuring words in phrases unused before (about the potential for future growth in the economy) would be bullish fodder.

This has not changed: Even though end-of-day measures are weakening, momentum measures on price and volume have not deteriorated to levels that shift the odds to favor a short-term trend lower.

The S&P 500 is now weaker than the Nasdaq and overall, readings for the S&P 500 are neutral. A consolidation sideways often follows readings like this.

Despite lower guidance from chip companies and a 1.00 August book-to-bill ratio, chip stocks seemed to have gained an immunity to selling. This offers some insight into the big money. The big money thinks that the round of disappointing guidance we have heard recently is the end of the cycle of weakness. (If they didn't think it was close to or at the end of the weakness for chips they would have been selling hand over fist in reaction to the recent guidance.) Right now I think this limits downside.

Immediate Nasdaq support remains 1,896-1,876 then 1,868-1,840. If the index moves lower and prints below 1,892.00 for more than 4 minutes without attracting buying interest to move prices higher, then, immediate intraday downside risk for prints 1,883 and lower will increase.

S&P 500 support is 1,123-1,117, which overlaps 1,118-1,113 making the 1,118-1,117 area a focus of support. Next support 1110-1094.

The S&P 500 is testing immediate resistance at 1,123-1,130.33. This year's June price action established more formidable resistance in the 1,129-1,146.34 area with a focus of resistance 1,132-1,140.

Immediate resistance for the Nasdaq is 1,912-1,933.03, resistance thickens with prints of 1,919-1,933. The next area of well-defined resistance is prints of 1,960 and higher.

Cherney is chief market analyst for Standard & Poor's

Before it's here, it's on the Bloomberg Terminal.