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Tuesday, June 17, 2014

Daily update 6/17

Once upon a time the market used to always gap up and rally on the morning of a FED announcement.  The FED noticed this pattern and put out a paper on it.  I guess they figured if everybody knew the pattern it would stop happening.  They were right.  The pattern is now for the market to rally the day before the meeting.  Interestingly, it doesn't always gap up.  However, at the end of the day it is positive nearly every time.  It also has been showing a tendency to gap down on FED day and trade somewhat lower that morning.  So lets see what happens tomorrow.  It did the pre FED day rally on schedule.  Here is the daily SPX chart.

The bulls came out to play again today.  As the other days there was a bout of selling on volume.
SPX has rallied now for three days, but it is still below the 6/12 last down day high.  It spent quite a bit of time this afternoon in the area of that high, but did not break through.  Since that bar was not all that big the fact it is providing resistance might be important.  Lets have a look at the futures chart.

The futures got above the upper trend line early this morning, but that rally was met with some selling that took them back below.  Another rally attempt pushed them through again.  So we ended the day above the trend line and above the 18 SMA.  However, we need a bar with a higher close to confirm the upside break.  That could happen overnight, or not.  If SPX is above 1944 at 10:00 or at the close then we have upside confirmation. 

FED day can often be a wild card.  Very hard to predict.  The last four days form a possible bearish candle pattern.  Here is a look at it.

As I mentioned above the last three days are all contained inside the 6/12 down day.  If the current pullback has more to go then I would expect they will sell the FED announcement.  If we get to the announcement and SPX is still below 1944 that would be something to watch for.  If we are above 1944 at the announcement time they might make a run for the all time high.  It is not all that far away.

The bulls seem a little lazy here.  Today had the strongest breadth of the three day rally and it was only 59%.  There were only 22 new SPX highs.  I certainly can't blame them.  The market is not cheap and the geo political situation is quite unsettled.  Further increases in the price of oil will be a drag on global growth.  It seems hard to put money to work here to me.  I guess we will see what happens.


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