David Moenning

About the Author David Moenning

David Moenning is a the Chief Investment Officer at Heritage Capital, which focuses on active risk management of the U.S. stock market. Dave is also the proprietor of StateoftheMarkets.com, which provides free and subscription-based portfolio services. Dave began his investment career in 1980 and has been an independent money manager since 1987. Thus, Dave has been live on the firing line and investing for a living for more than 25 years.

David Moenning: Near-Term Markets’ Price Action is Likely to be Important

It’s “Fed Day” once again, so in all honesty, not much else matters in the early going today. The key to this fine Wednesday morning is that the Fed is expected to drop the word “patient” from the statement accompanying the rate announcement. The general consensus is that Ms. Yellen will instead favor language suggesting that rate increases may soon be warranted if the U.S. economic recovery remains on track and if the Fed can be “reasonably confident” that inflation will soon begin moving back toward the Fed’s 2% target. Traders will also be looking for some additional color on the topic of policy normalization from today’s update of the “dot plot”, which details each FOMC member’s view on where interest rates will be and when. The market will also be listening intently for the committee’s view on the state of the U.S. dollar as well as the recent soft patch seen in the economic data. Recall that with the exception of the monthly jobs report, the vast majority of the economic data has come in below expectations of late. Therefore it will be interesting to see whether or not Yellen’s gang will acknowledge the weakness. Stay tuned because, as usual, Fed Days tend to produce some fireworks in the markets.

Current Market Outlook

The good news is that the wait is finally over as Janet Yellen will likely tell the world why the FOMC removed the word “patient” from the statement relating to forward guidance of monetary policy today. In English, this means that the Fed is putting an end to the calendar-based guidance it has provided now for many years and returning to a data-dependent approach. Another way to look at this is that the Yellen & Co. now believe that since the economy is now able to stand on its own two feet without the help of the monetary “juice” the Fed has been providing for more than six straight years, it is time to let the state of the economy/inflation dictate the direction of rates. The problem for the market isn’t necessarily the fact that the Fed is going to raise rates at some point soon, but rather the uncertainty the new approach brings. And while this level of uncertainty may not be enough to bring the bears out of hibernation, it may give the Wall Street boyz and their fancy computer toys something to play with for a while. Therefore, volatility will likely remain high and in turn, some caution remains warranted in this difficult trading environment.

Technical Take

Although the action continues to be sloppy at best lately, the lines in the sand from a technical perspective are now quite clear. In short, traders have positioned the market in a bit of an equilibrium point in front of Janet Yellen’s announcement/press conference today. Here’s how it breaks out: A move above 2080 will likely create a push higher into the next resistance zone at 2100 while a break of 2050-40 will embolden the bears. So, with the Fed on tap, a market that is neither overbought nor oversold, and sentiment also relatively neutral on a short-term basis, it appears to be anybody’s ballgame here. And because of this, the near-term price action is likely to be important.

S&P 500 Index – Daily

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