No Technical Green Light for Markets

Markets managed to post another gain yesterday. That’s two in a row for the first time since early November. The S&P 500 (+1.06%), Dow Industrials (+0.91), and NASDAQ (+0.87%) all ticked higher and held onto early gains, but honestly failed to spark much in the way of institutional excitement as volume on both the NYSE (-6.04%) and NASDAQ (-5.55%) slipped.

Technically speaking yesterday’s rally left the market well short of the green light that would signal the “coast is clear.” The NASDAQ’s close at the 4996.35 level left it above the 200 DMA, but below the 50 DMA. The S&P 500’s close at 2043.41 left it short of both its 50 and 200 DMA. The Dow Industrials close at 17,524.91 enabled it to close right on the 50 DMA, but below its 200 DMA. In Sum, the rally we have been treated to this week has enabled markets to partially recover from last week’s pummeling, but only in mixed fashion.

Energy again led the charge higher yesterday, as it did on Monday. And as was the case on Monday, crude provided lift by closing above $37.00/bbl. Financials followed in anticipation of today’s move on rates while Materials lost meaningful ground as a result of continued concerns over global demand and oversupply.

Clearly the pullback in volume that characterized yesterday’s trading session spoke directly to today’s FOMC Announcement. Institutional investors stepped away from markets and will likely do so today – at least until 2:00 PM EST when the FOMC news hits the tape. Markets have priced in a rate rise. In that event I suspect markets will largely hold their ground. In the event we see the Fed punt on the long anticipated move, I suspect investors that have placed their trades on in anticipation of a move will act to unwind those trades as expeditiously as possible – potentially leading to a spike in volatility. As least in part, the reason for a rapid liquidation of the trade is due to the calendar. The year end is fast approaching. Though we have nine trading days left in 2015. Several of those days will be impacted by abbreviated trading sessions. In short, if a move in rates does not materialize today, odds are that an unwind will hit the tape likely leading to a rocky close to 2015.

Obviously, today’s Economic Calendar will be dominated by the FOMC, the FOMC Forecasts and the Fed Chair Press Conference. Of course the EIA Petroleum Status Report will also drive investor attention. Look for a bifurcated session. pre-FOMC/post-FOMC.

flickr photo: mikecogh