Pre-Fed Keep It Light

September 20, 2022
Author: Peter Stolcers, Founder of OneOption

The market action will be dull ahead of a 75 basis point rate hike Wednesday

PRE-OPEN MARKET COMMENTS TUESDAY – The SPY broke a key support level at $390 last Friday and we are likely to test the low of the year in the next few weeks. The S&P 500 is down 25 points before the open.

Traders are bracing for a 75 basis point rate hike from the Fed tomorrow. After a “hot” CPI and a decent jobs report, they will continue to aggressively tighten to tame inflation. That is their primary objective and they are going to attempt a “soft landing”. As a global shipping company, FedEx has its finger on the pulse of the economy and it forecasted a global recession last week.

The price action is likely to be choppy. Typically the volume drops off into the FOMC statement and I am expecting dull conditions. Yesterday, buyers defended the low from Friday and we instantly jumped off of the opening low. The market rallied most of the day and it closed the gap from Thursday. Some of the gains from yesterday have been erased and we will open at the halfway point of the green candle from yesterday.

Swing traders should remain sidelined.

If we have another gap reversal this morning with nice long green candles on the open, I would be much more bullish for the next week. That would be a sign that buyers are interested at this level. The last leg lower has been very stubborn and that is a sign that a bounce might be coming.

A drift higher with mixed overlapping candles is what I am expecting this morning. Bears want less than half of the gap to fill. If it fills all the way, that is a sign of decent buying pressure and I will day trade from both sides. After the rally yesterday, I don’t believe we will see a nice drop until the upside is tested. If the market can’t recover from the gap down and we struggle to fill the gap, it will be a sign that sellers are back and I will favor the short side.

Support is at the low from yesterday and resistance is at the high.

This is how yesterday played out. You can see the instant bounce and the close on the high of the day

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September 19, 2022
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