The S&P 500 (INDEXSP:.INX) has been pacing the “range-bound” price action in the U.S. – and we are seeing similar price action in Europe. At the same time Bond prices are consolidating with the US Dollar. All this is likely due to the upcoming Bank of Japan and Federal Reserve (FOMC) meetings. And both events could prove important in finally providing a much needed directional breakout from this consolidation phase.
The consensus seems to be “No Hike” from the financial markets. But most are expecting some hawkish rhetoric about an upcoming hike in the near future. That would seem to be the perfect bill to soothe both camps, while not upsetting a market that’s only assigning an 18% chance of a hike this week.
The S&P 500 rallied up near last Thursday’s highs on Monday, then fell to finish nearly unchanged. Small caps outperformed but NASDAQ 100 stocks fell nearly 0.50% on the day.
For now, there’s no use making grandiose projections about what will happen post Federal Reserve on Wednesday. But the trend right now remains negative in the last 2-3 weeks for both stocks and bonds. A “possible” scenario calls for “No Action” leading to yields falling along with the US Dollar index, particularly if a Non-hike is accompanied by any sort of weaker rhetoric. Both Gold and WTI Crude Oil seem to be near strong support levels, from a price and time standpoint. So it’s worthwhile to keep an eye on the US Dollar.
As was the case last week, the Utilities sector showed further signs of strength. This comes despite rates ticking up and seems to be more closely correlated with the Fed Funds futures indications of a September hike. The lower the chances become, the more we see Utilities rise. REITS have also perked up, though they remain negatively sloped over the last month given their weakness.
S&P 500 Futures Chart
Similar to late last week, very little was accomplished structurally in Monday’s trading. Prices remain languishing in range-bound consolidation ahead of important meetings this week from the BOJ and FOMC. Given the negative seasonal tendencies for this week (20 out of the last 25 post Q3 Expiration weeks have been down), I still feel the path of least resistance remains to the downside. Signs of Technology taking a breather were quite evident in Monday’s trading. For now, 2145-7 remains important on the upside for S&P 500 December futures. And 2120-2 is a key support level on the downside, followed by last Thursday’s 2107 lows. Until broken, we’re in a trading range, with a bias towards volatility picking up post-FOMC.  chart created on Bloomberg
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