Stock Market Waiting On Fed Wednesday....

By: Jack_Steiman

The market volume today was very low. The reason is simple. Not many want to place bets in front of fed Yellen on Wednesday when she does what she has to do regarding interest rates. We all know she won't raise rates this time, but the market is very interested in her language regarding the future. To get an idea if and when the next rate hike may occur. If she talks about raising in the future, I think the banks will clearly like that news, while the market reaction will be unclear, in my opinion.

If the market thinks it's because the economy is improving, the market will like it. If the market thinks it's a forced move in to an economy that's still floundering, then the market likely won't like it. She has a way with words and doesn't want to spoil the good action we've seen the past few weeks, so I think she'll make sure her words are taken as friendly. You can never be sure, but that's my guess. Since you can never be sure, however, volume is contracting. No one is in charge today. The bulls and bears are taking a vacation. Probably tomorrow as well, and then fireworks on Wednesday.

A breather before we find out if the market is going to test massive resistance at the gap at S&P 500 2044. If we do blast through 2044, then we have 2080 up next followed by 2104, and then 2116 before finally testing the all-time highs at 2134. All of this hinges on the words from the master of confusion on Wednesday. The thing to remember, although not always true, is that the day's reaction is often reversed the next day. That's never one-hundred percent true, but often the case. The bulls would prefer a small move lower on Wednesday. That said, if she says everything the bulls want to hear, and if the bears think they have no shot, then we may just blast out. I'm trying to figure out just how much she wants this market at new highs, because, in the end, it is all about her, and the rest of the world's central bankers. She's in full control. Make no mistake about it. Maybe she doesn't want to create too much inflation through the market, so she may hold off some on all the good tidings, but I really think the bulls don't have to worry about her bringing them down too much.

The usual suspects are at it again. The FANG stocks. They are starting to look better, and need to get rocking to help the Nasdaq play some catch up to the rest of the stock-market world. The S&P 500 and Dow are getting most of the play this year. We can see how far behind the Nasdaq is as the world is moving away from froth and in to safer, lower P/E stocks. The Nasdaq needs the FANG stocks, along with those frothy biotech stocks, to get moving. The difference this year is huge as the S&P 500 is down basically one percent with the Nasdaq down five percent. In an uncertain economic environment, it is natural for traders and investors for the longer-term to choose safety over greed. We're seeing that for the entire year, thus far. That said, there is improving conditions these past few days on the froth front. If that continues after the fed speaks, the bears are done. Simple as that. If froth plays catch up, then the bears will have to cover many of their remaining short positions, and the added fuel is on for new highs on the S&P 500. There are inflection points in every market, and I believe we are there now. The fed has the floor. How much higher does she want things? We'll know the answer in one and a half trading days. It's as simple as that. Be neither bullish nor bearish heading in to the report. Let her words tell us what to be.

The critical levels are 2044 gap and 1958. That's the gap resistance and the 50-day, exponential, moving-average levels respectively. If we lose 1958 we're in trouble, meaning it's likely we see further down side action. If we blow through 2044, then we are headed higher. The bulls are gaining momentum. The fed can carry this up and out. Interesting times, bad-looking, monthly index charts, or not. Maybe things are changing as times evolve. Maybe it's now about only what the fed does and maybe those negative divergences won't matter the way they have for the past twenty years plus. You never know what's happening. Markets change. Technical analysis changes over time. It's possible things are re-morphing in to something we haven't seen before. We'll learn soon enough. It's all about Wednesday and the fed.

Jack

Jack Steiman is author of SwingTradeOnline.com ( www.swingtradeonline.com ). Former columnist for TheStreet.com, Jack is renowned for calling major shifts in the market, including the market bottom in mid-2002 and the market top in October 2007.

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