Fed Hikes Wednesday, But Several Key Assets Key Off Of Technicals

Wednesday, the FOMC met. The fed funds rate went up another 25 basis points to between 1.5 percent and 1.75 percent. One would think this would drive market action. But looking at a diverse set of assets, technicals played a bigger role in the session than the Fed decision.
 

Pre-meeting, there was widespread speculation that the FOMC’s dot plot would signal four hikes this year.  But members stuck to their three-hike forecast from last December.  The so-called dovish hike in normal circumstances should have helped stocks.  For a while, this was precisely how things transpired, but technicals came in the way.

Right after the rate decision at 2 P.M., the S&P 500 large cap index jumped to 2739.14, but ended up the session down 0.2 percent to 2711.93 (Chart 1).  A similar post-FOMC statement jump in the Dow Industrials and the Nasdaq 100 – to name two – met with selling, respectively down 0.2 percent and 0.5 percent in the session.

Where did the sellers show up?

On the S&P 500, the intraday high lied between the 20- and 50-day moving averages.  The Dow Industrials – also below its 50-day – was rejected at the 10- and 20-day.  The Nasdaq 100 was rejected at the 20-day but buyers supported the 50-day.  The Russell 2000 small cap index, which is above its 50-day, was denied at the 10-day, but managed to rally 0.6 percent anyway.

The action in small-caps is even more interesting as investors/traders tend to gravitate toward this group when they are on risk-on mode versus large-caps.  But then again gold ($1,321.50/ounce), which is traditionally treated as risk-off, rallied, up 0.7 percent in the session.

Technically, gold bugs have defended crucial support at $1,300 for three weeks now.  Both Monday and Tuesday, the metal fell to $1,306-1,307 (blue arrow in Chart 2).  This is also where the daily lower Bollinger band lied.  Wednesday, gold opened near those lows and was bid up all day.  At one point, it was up 1.9 percent, but sellers showed up right at the upper Bollinger band.  The metal is below the 50-day.