Daily Commentary: September 20, 2023

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Fed-Day – Here’s What to Expect From the FOMC

Posted by Peter Stolcers on September 20

The market has been waiting for this release, but I doubt we will hear anything new. Here’s what I’m watching.

PRE-OPEN MARKET COMMENTS FED-DAY – This morning the /ES futures are opening 12 points higher. Anyone who shorted the D1 trendline breach yesterday is getting squeezed even harder this morning.

I recorded a video before the open and I discussed the trap that was set, how to identify moments when one is setting up and how to avoid them.

The market is right where it was 3 months ago. Buyers and sellers are paired off and one of two things needs to happen to get us out or this range. Today will not give us this clarity.

  1. The Fed stops tightening and inflation abates while economic growth remains stable. That would produce a breakout and we will take out the 52-week high.
  2. A sharp decline in economic activity with potential credit concerns and stubborn core inflation. This would produce a breakdown to the 200-day MA.

We are going to get a reaction. There is a D1 wedge forming and the price action is compressed. The range is only 70 S&P 500 points wide so it won’t take much to force a breakout. That breakout will provide us with short-term swing trading opportunities, but I am not expecting a sustained move. The macro backdrop needs to change for that to happen.

Shorts are going to get squeezed a little more and then we are going to trade in a tight range. The volume is likely to be light. I don’t believe the market will help or hinder into the FOMC statement. You will have to close trades out before the announcement (or subject yourself to a lot of risk) so you are painting yourself into a corner if you trade actively.  If you find a really strong stock that is breaking out on heavy volume, be patient and enter well. Find reasons not to trade before the release.

I am expecting a “balanced” statement from the Fed. “We are closer to the end of tightening, but core inflation is stubborn. After aggressive tightening the last year it is prudent for us to take a break and to gauge the effects of our actions. There are signs of economic deceleration, but overall growth is still good.” This is consistent with the messaging the last three months and the market has not moved.

Long mixed candles, lots of retracement, long wicks and long tails are a sign of indecision. A big move one way with these characteristics is likely to be reversed. I doubt we will hear anything material today. Don’t get whipsawed or fooled by these moves. Only 3+ M5 stacked candles of one color with a close at the high/low of the bars with little to no overlap are of interest and we are not likely to see them today.

Support is at $442.50 and resistance is at $451.

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