Fed Action Casts Shadow On Bullish Case For Stocks

The main U.S. stock market indexes lost 0.2-0.3% on Wednesday’s following relatively brief rally after the FOMC’s Rate Decision release. The S&P 500 index continued to fluctuate within its short-term consolidation. It is currently around 5.2% below January 26 record high of 2,872.87. The Dow Jones Industrial Average lost 0.2%, and the technology Nasdaq Composite lost 0.3%.

The nearest important level of resistance of the S&P 500 index remains at 2,740-2,750, marked by Monday’s daily gap down of 2,741.38-2,749.97. Yesterday’s daily high of 2,739.14 confirmed the importance of that resistance level. The next resistance level is at around 2,775-2,780, marked by last Wednesday’s daily high. On the other hand, support level is at 2,695-2,700, marked by Monday’s daily low, among others. Potential support level is also at 2,650-2,670, marked by previous local lows.

We can see that stocks reversed their medium-term upward course following whole retracement of January euphoria rally. Then the market bounced off its almost year-long medium-term upward trend line, and it retraced more than 61.8% of the sell-off within a few days of trading. Is this just an upward correction or uptrend leading to new all-time highs? The market is still in the middle of two possible future scenarios. The bearish case leads us to February low or lower after breaking below medium-term upward trend line, and the bullish one means potential double top pattern or breakout above the late January high. Monday’s sell-off made the bearish case more likely again. You should take notice of a breakdown below potential rising wedge pattern. This over month-long trading range looks like an upward correction following late January – early February sell-off:

Stocks Set to Open Much Lower

Expectations before the opening of today’s trading session are negative, because the index futures contracts trade 0.8-1.3% lower vs. their yesterday’s closing prices. The European stock market indexes have lost 0.7-1.0% so far. Investors will wait for some economic data releases: Initial Claims at 8:30 a.m., Flash Manufacturing PMI, Flash Services PMI numbers at 9:45 a.m., Leading Indicators at 10:00 a.m. The market is back at its Monday’s lows, so the overall sentiment worsened again. Will it break lower? If the S&P 500 index breaks below the support level of 2,700, it could continue towards the above-mentioned 2,650-2,670.