No Rest for the Wicked — Fed Decision on Tap

Markets are not pricing in a rate hike today.

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Our View

Yesterday we talked about Monday’s rally being the front run for Tuesday’s CPI rally…and now one has to wonder if yesterday’s front run was for today’s no rate hike from the Fed.

According to the target rate probabilities, there is a more than 90% chance the Fed does not change rates today. However, we could get a hawkish press conference to make up for it. Further, not many investors seem to be talking about the increasing odds of a rate hike next month:

Most people now assume there will not be a rate hike today, but there remains a high probability of a July rake hike. After that, investors expect a longer pause that could last into the early part of 2024.

I am going to leave it at that…so far the only thing hellish this week is the speed of the rally.

Our Lean — Range Expansion Is In Play

Look, it’s not paying to be bearish. Put another way, being a seller has been fighting the trend.

The S&P has entered a new bull market by rallying more than 20% off its low. The bear market, which lasted 248 trading days, was the index’s longest stretch since 1948.

My guess is there is still room to run and while this will not necessarily apply today, it’s a “buy every 10 to 30 point pullbacks” kind of tape. That won’t really apply to today’s tape because the ranges may be set to expand after the Fed’s 2pm decision, the ensuing headlines and Powell speaking at 2:30, but based on the price action, it is increasingly hard to fade.

As for today, the S&P 500 has fallen in five of the last six Fed days. In that stretch, the press conference has usually been what’s hit the S&P the hardest.

The levels I am looking at are as follows on the upside: 4429, 4458-60, 4485 and 4500. On the downside, I’m watching 4400-05, 4385-90, 4370 and 4344.

MiM and Daily Recap

The ES traded 4388 before the CPI release, rallied up to 4415.50 and opened Tuesday’s regular session at 4402.75. After the open, the ES sold off down to 4400, then rallied up to 4421.75 at 9:43, sold off down to 4396 at 10:18 and then rallied back up to 4423 at 11:24. After the high, the ES sold back off down to the VWAP at 4407 at 12:05 and then rallied back up to a new high by 1 tick at 4423.25 at 1:08 before dipping back down to 4414 at 1:16. The ES traded back up to a lower high at 4421.75 and got hit by a few big sell programs that pushed the future down to 4402.50 at 2:40.

From there, the ES rallied up to 4416.75 at 3:23, dipped down to the VWAP at 4410.25, and back-and-filled in a 4 to 5 point range until it traded 4411.75 as the 3:50 cash imbalance showed $565 million to buy and traded 4413.25 on the 4:00 cash close. After 4:00, the ES traded up to 4420.25 and traded 4418 on the 5:00 futures close, up 27 points or 0.61% on the day.

In the end, everyone always underestimates how high the PPT — the plunge protection team — can push up the S&P in light of all the economic problems. Right now the S&P is making good of the bad news. In terms of the ES’s overall tone, it was firm all day. In terms of the ES’s overall trade, volume was steady at 2.48 million contracts traded (again, with the rollover in play).

Technical Edge

As most long-term readers know, we tend to search for relative strength stocks to buy rather than relative weakness stocks to sell. That said, we have one open short position on the books in CVS.

Those holding that position, please see our update in the section below. Otherwise, I am glad that we are not coming into the Fed day with a full book. That always makes the trading harder for me.

S&P 500 — ES (September Contracts)

The ES gave us a push to a major level yesterday…4420-25. That’s the 261.8% extension of the current range and the 61.8% retracement of the bear market decline.

It can go higher, but a rest would be more ideal. Be on watch for a move into session highs or lows going into the Fed presser — the algos love to run the stops on both sides and put the market at extremes before creating sharp reversals.

SPX

Don’t forget yesterday’s open gap down at ~4340.

As for today’s levels:

SPY

Don’t forget yesterday’s open gap down at $433.88.

NQ

Nice breakout of that zone and push to 15K. If we continue higher, 15,140 is possible.

15,140 achieved yesterday. 15,300 is possible if they keep this NQ train running. That said, the bulls would do best if it could get some rest.

Open Positions

Down to Runners in GE, CAH, LLY, ABBV, AAPL, MCD & BRK.B. Now Add META, AVGO, UBER, CRM and AMZN.

Go-To Watchlist

Feel free to build your own trades off these relative strength leaders

Relative strength leaders →

Relative weakness leaders →

Economic Calendar

Disclaimer: Charts and analysis are for discussion and education purposes only. I am not a financial advisor, do not give financial advice and am not recommending the buying or selling of any security.

Remember: Not all setups will trigger. Not all setups will be profitable. Not all setups should be taken. These are simply the setups that I have put together for years on my own and what I watch as part of my own “game plan” coming into each day. Good luck!