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Wednesday, 18 September 2013

FOMC Taper News Day

Today is likely to be dominated by the FOMC Announcement at 2 PM. That announcement seems likely to contain details of when tapering will start, the scale and structure of any taper, and possibly a draft timescale for the tapering to zero of QE3 over the next year or two. This is significant market moving news so many traders will be avoiding carrying any exposure into the announcement.

Yesterday's action  was bullish from the start with a strong close, so the previous day's topping tail was not confirmed and SPX rode the band up, closing within the range I gave in the morning in the case that SPX did not confirm a short term top. If we see the same today then the closing range should be in the 1710-3 area, and with the current all time high at 1709.67, that means that we may well see a new high today. With both the topping tail negated and the negative divergence on the daily RSI 5 wiped out by the rise yesterday, I can't see any strong technical reason to expect a significant high to be made today, particularly as there is no divergence on the daily NYMO either. SPX daily chart:
A new all time high is in range today as I said, and I would expect the close to be within a point or two of where the daily upper BB closes if SPX continues to ride the upper band up. At this stage I would normally not expect a punch (closing basis) above the upper band, but with the FOMC announcement today that's harder to say. The weekly upper bollinger band is in the 1720 area and I'm not expecting a weekly close above that, I also have broken rising megaphone support in the 1725 area, and would expect a reversal there if that is hit.

The SPX 60min pattern is the rising wedge I posted yesterday. The lower trendline is less well formed than I like but it is in play here. There is now of course a nice looking potential double top on this chart are we are now in the right range to make a decent second high for that pattern, which I would see as lower probability over 1730. SPX 60min chart:
On ES I have rising channel resistance in the 1711 area at the moment, and strong support in the 1692-5 area. ES 60min chart:
On other markets CL declined into the 105 area at falling wedge support I was looking at yesterday morning and bounced strongly there. The falling wedge has broken up and I am expecting CL to retrace to the 105.5 to 105.75 area (IHS scenario) or to test the lows (double bottom scenario) before a larger rally. CL 60min chart:
The rally setup on GC still looks decent, and I'm not expecting the falling channel there to break down, but GC made a lower low overnight below the important 1300 support area. We might see that overnight low retested before a stronger rally into channel resistance. I have short term declining resistance at 1312 and a break over that should deliver that rally into channel resistance, currently in the 1350 area. GC 60min chart:
I've been giving USD some thought this week and one thing I'm watching carefully is what happens when EURUSD tests the top of the trading range since May between 127/8 and 134/5. We may well see the second high of a double-top there that would take EURUSD back to the bottom of the range. A break up there would obviously look very bearish for USD. EURUSD 60min chart:
TLT traded within Monday's bearish engulfing candlestick yesterday, so that bearish signal is not yet confirmed. Obviously FOMC is a huge wild card for bonds today so I'm giving TLT another day to confirm or fail to confirm the bear signal. TLT daily chart:
Lastly the AAPL falling wedge I posted yesterday morning broke up and there is a very good chance that the retracement on AAPL has bottomed or is bottoming. We could see a retest of the lows for a double-bottom, and I also have a possible IHS neckline in the 478 area. AAPL 60min chart:
On May 22 Ben Bernanke said that he would expect to finishing off tapering QE to zero as and when US unemployment hit 7%. With US unemployment now at 7.3% that raises some real questions about how long QE will be allowed to continue, as to stay within that timetable aggressive tapering would need to start now. On the other hand noises are being made about how the unemployment figure is greatly flattered by falling participation in the workforce, now back down to levels last seen in the mid-70s. That's a good point, though that has obviously been the case for years. The Fed board are generally a very doveish bunch and in recent years their policy tightening bark has been meek and their policy tightening bite mainly theoretical. I would expect any tapering announced to be modest at first, spread over an extended period, and structured to avoid alarming asset markets, but I might be mistaken. We shall see. If they tighten aggressively we could obviously see a major high made today.

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