One More Day of Selling – Market Will Rally After FOMC – Buy At These Levels
POSTED BY PETE STOLCERS ON MARCH 20
The market has dropped 100 S&P 500 points in the last seven trading days and the selling pressure has been steady. Traders are nervous ahead of the FOMC statement tomorrow. Don’t trust the early rally this morning. We are going to probe for support and the market will settle into a tight range the rest of the day.
I believe the Fed’s tone will be dovish. That is typical after a rate hike and the new chairman will not rattle an already nervous market. Inflation (wage and price) is moderate and that will give the FOMC some breathing room. Their comments will leave the door open for three more rate hikes this year, but they will be leaning towards two rate hikes.
The market got ahead of itself and some of the “fluff” has been taken out. Politicians need to extend the debt ceiling on Friday. This had previously been negotiated, but mudslinging in DC has some investors wondering if there could be a shutdown. Ahead of midterm elections both parties will agree to “kick the can down the road”.
I’m expecting to see a relief rally after the FOMC and after the debt ceiling extension.
Earnings have been excellent and we are only three weeks away from the next cycle. Buyers are typically engaged ahead of earnings season and that will provide market support.
Swing traders were flushed out of call positions yesterday when the SPY closed below the 50-day moving average. If the market trades above the 50 day moving average intraday, buy calls. If the market trades down to the 100-day moving average, buy calls. This market drop has almost ended and the next leg of the rally will begin
Day traders should look for an opportunity to short the early rally. After a day of persistent selling the downside will be tested. Take profits and know that the action will settle down. Traders will patiently wait for the FOMC statement tomorrow.
We’ve seen heavy selling pressure during the last week and support will be established this week. Get ready for the next leg higher.
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