Look For Choppy Trading and Light Volume Ahead of the FOMC. Any Surprise Favors the Downside

When the market starts to trade off of columns written in the Wall Street Journal and the Financial Times, you know the price action is just noise. That is exactly what happened yesterday. The market needs to consolidate in a range. It will gather strength over the summer and if economic conditions improve, it will make a new high. This will take time to resolve. Reporters are guessing (keyword) what Ben Bernanke will say tomorrow. Many analysts believe that the tapering message will soften and that is why the market is rallying. I believe their message will be unchanged. If economic conditions improve, the Fed will taper. If economic growth continues to struggle, they will remain accommodative. Their last statement was NOT hawkish to start with. Good news is priced in and any surprise favors the downside The more significant news could come Thursday morning when flash PMI's are released. China's growth has been slipping and the government does not plan to stimulate. Real estate rules recently tightened and if activity continues to slow, investors will get nervous. Analysts have been calling for a bottom in Europe for months. They are in their sixth quarter of negative growth and there aren't any signs of life. Domestic economic activity will tread water at best as fiscal spending cuts are implemented. I believe the focus will shift to economic releases and global economies will continue to sputter. FedEx posts results tomorrow and guidance will be important. They are considered an economic barometer for global activity. The SPY has rallied above the small downtrend the started a month ago. We are back above $164 and if we close at this level the SPY will have made a higher high. From a technical standpoint this is bullish. From my viewpoint, we will trade within a range this summer ($159 - $168). We are nearing the upper end of the range and I am more inclined to go short than I am to go long. If we push higher, I will stay on the sidelines and I will gauge profit taking. I won't short unless I see a big rally and an intraday reversal. I would also start shorting if the SPY closes below $164. I mentioned yesterday I would look for an opportunity to fade that opening gap up and that worked out well. We got a nice reversal and I day traded the move. When it failed to follow through, I took profits. The headwinds are fairly stiff at this juncture. Global economic conditions are sluggish and that needs to change. Improvement will push interest rates higher and that is also short-term bearish. Resistance is building and it will be difficult for the market to make another new high. Asset Managers won't chase at this level, but they will buy dips. That means support at the 50-day average is strong. Strong bid + strong resistance = trading range. Credit risks remain low and the market is likely to tread water. This means you have to sell rips and buy dips. Set targets and take profits. In this choppy environment, you are lucky to get two or three days of directional movement. I believe good news is priced in and we could see a decline tomorrow afternoon and Thursday morning. I am looking to buy puts. If I don't get the price action I'm looking for, I will stay on the sidelines. Traders will not take big positions ahead of the FOMC. Look for choppy trading and light volume. . .

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