Fed Day Tips to the Bulls

Pre-market futures are up strongly on the combination of a worse than expected GDP report (-6.1% vs. -4.75), a weakening dollar that is leading to higher oil prices, BHI and HES beating earnings in the energy sector in part because of higher oil prices the past six weeks, an analyst upgrade of banks the same day it was confirmed by the Fed that at least 6 of 19 banks (including BAC and C) will have to sell preferred shares in order to raise capital to cushion against losses, the speculation that Treasury Secretary Geithner (Mr. "the banks have more capital than they need") plans to "finance" (i.e. add to the national debt, weaken the dollar, and run up oil prices - see above) the purchase of $1 trillion (additional $1 trillion??) in illiqued assets from banks, and the afterglow of the most meaningless, most easily manipulated (short term) economic report of all economic reports (consumer confidence beat expectations yesterday).

There you have it. There's all the good news. Hey, I don't make this stuff up, I just report it.....sometimes I even comment on it.....And guess what? The SPY (market) is going to gap up about .70 cents or so in about 15 minutes. The futures came back a little on the GDP report from +.95 to about +.70, so there appears to be at least a few fund managers still left in America who know how to decipher the news, however, the market is still set to gap up and attempt another run at the 86.50 - 87.50 resistance area.

By the way, that brings the Asteroid Shower - hmm, hmmm, I mean the SPY chart up to 24 gaps in 26 trading days.....but who's counting?.....

Here is a chart of the SPY:
(click on image to enlarge)

Here is a chart of the Dow:
(click on image to enlarge)

Let me reference the Dow since I already talked about the resistance zone for the SPY. The Dow is in a Rectangle (potential continuation pattern) that could also be a Rounding Top (reversal pattern). We will know what it finally decides to be after it confirms one way or the other. It looks like traders are consolidating the market in a Rectangle type of behavior because they are hanging around expecting more "good news." I speculate that the combination of the gap up this morning, and the Fed rate decision at 12:15 pm MT is an indication that many fundies would love to have even the tiniest reason to break the market out and go on another nice uptrend. It will be interesting to see if the Fed says something (whether it's fundamentally sound or not) that acts as a catalyst for the fundies to break out of the Rectangle. The bulls seem to be hanging around hoping for just such an occurance.

The gap up this morning will probably lead to at least an attempt at testing yesterday's highs in the 8,100 area. But the market will then probably go into "quiet" mode ahead of the Fed. I'm not looking for much more than a gap, a test of the 8,075 - 8,100 area on the Dow, and then some consolidating and "quieting" ahead of the Fed. Then, as usual, the market will get volatile right after the announcement. That means there might be a few individual stock trading opportunities this morning, but don't look for a huge amount of activity or momentum for about another five hours. However, keep a small eye on things early, and then watch closely after the Fed, because traders really are acting like they want to break the Rectangle to the upside. We shall see.....

7:35 am MT: The market came right out and ran to 8,090 just as speculated. Now we'll see how the wiggle forms and if traders will keep pinging around the 8,100 area or a little higher as the wait/hope/get excited for the Fed to say anything that will light the dry brush and explode the market through the Rectangle and off to 8,300 - 8,350. This is where I remind myself over and over and over again that technical analysis isn't about what is fundamentally real or economically logical. But technical analysis is telling me the truth about what fund managers are buying and selling. And the charts are telling me the truth is that fund managers are buyers, and they are potentially even stronger buyers in the coming weeks. So I lay aside my opinion, I put reality in a sealed box, and I watch support and resistance to see what fund managers are doing, and where they might take the market.

8:35 am MT: The market has had a good run this morning ahead of the Fed. This 8,150 - 8,200 area on the Dow is a resistance zone so this is probably the first area of longer intra-day consolidation. It may even be the peak ahead of the Fed.

The bulls keep pushing against the top of the Rectangle and acting like they are just chomping to break out. So the speculation from this morning has been correct, and fund managers are buying and positioning as if they expect/hope for something from Benny and the Feds that will validate their opinion and open the way for a breakout and run up to the 8,300 - 8,350 area.

12:50 pm MT: The Fed announced.....nothing! And anybody with functioning neurons was expecting.....nothing! So the market did the token pop thing right after the Fed, and now it's doing the token drop thing right after the pop, which is bringing it back into the resistance zone.

I'm always a little careful not to consider the first 1-2 moves right after the Fed to mean anything, even if it's a breakout like we just had on the major indices.

Here is a daily chart of the SPX showing the little intra-day breakout so far:
(click on image to enlarge)

Here is a 5m chart of the SPX showing the drop right back into the resistance zone:
(click on image to enlarge)

You can see the pop and drop right after the Fed. The market broke resistance for five minutes, which sucked in all the breakout day traders, and then it punished them for their ignorance by flopping right back into the resistance zone.

We'll see if the market can hold, form up a bit, and close near the highs of the day. If it does, there will probably be some bullish carry-through tomorrow. If the SPX drops back below 869 - 871 then we will probably get a Shooting Star and the whole Fed experience will be a buy the rumor sell the news thing by the fund managers. I'm leaning about 55/45 that it's a buy the rumor sell the news thing, but I want to see how this forms up in the next 20m or so, we shall see.....

1:08 pm MT: There's the second little peak through resistance. I have a feeling the fund managers are about to say "boo!" again and send the breakout day traders to failure number two.

1:09 pm MT: Yep, the Big Money just handed the breakout day traders their head again.....Happy Halloween Ichabod Crane!

Alright.....all fun and games aside, this is an important time to watch and see if price action will hold tight and build over the next 15m or so, or if it weakens and starts heading towards 871.

1:13 pm MT: There's a messy Bear Flag forming on the 5m charts, so I'm still holding with my 55/45 speculation of another drop down from here, but it's pretty close. I drop below 875 probably sends the SPX to the 871 area, but again, price action is hanging in the balance. I'm just watching right now, not trying to play all this gyrating. I want to know what the mood may be for tomorrow or the next couple of days based on how traders are treating the Fed announcement right now - which has obviously been part of their bullish upswing playbook all along (the clue was the mini-breakout right after the Fed).

1:46 pm MT: As I speculated (55/45 probability), the market rolled down off the 5m Bear Flag, breached 875 in a straight line and then tested the 869 - 871 support area (869.48), before throwing a Hammer on the 5m charts. The brief bounce after the 5m Hammer was another sloppy Bear Flag and then another collapse. Now it's likely that we will get a Shooting Star on the daily charts as I speculated.....Buy the rumor, sell the news.....

2:03 pm MT: Market Wrap: The market almost threw a Shooting Star, but some money came into the market in the last ten minutes to prevent that from happening. Today will go down as more of an accumulation day on the technical charts instead of a Shooting Star because of the buyer(s) in the last ten minutes before the close. Who says you can't manipulate a market? Look how easy that was. I realize it could have been real buying, I'm just pointing out how easy it would be to manipulate the charts on the close if you had a lot of money and you knew what you were doing.

What this means is that even if we get bearish news from earnings tonight and tomorrow morning, all the technical traders will be in more of a mindset to buy the dip - even if it's another gap down (sound familiar?). Like I said early in the day, trade what's on the charts regardless of whatever else is happening in the world. Many of you followed that instruction and made some nice profits on calls today.