S&P 500 Futures:Â (2-3 Days)- Mildly Bullish
The trend has proven quite shaky of late since late February, and it wouldn’t take much to turn the trend down, with one cycle study showing a low possible for 3/24. For now, there remains insufficient deterioration in trend of the indices themselves to suggest getting bearish ahead of FOMC. Yet selective hedges in various shorts are recommended, until the trend can show more conviction that this rally can continue. KEY SUPPORT IS 2351 –  LONG OVER… SHORT UNDER.
The turnaround Tuesday was a bit of a concern, as prices dipped down under Monday’s lows and seem apt to test last week’s lows near 2351 which will be key to hold on a closing basis to have conviction about stocks moving higher. As stated above, failure to hold this would warrant a trading short stance for movement lower of 3-5% in the next 8-10 trading days before any low is in place.
Conversely, rallies back up above 2376 would be constructive from an index price perspective, allowing for a test of former highs near 2400. Given that most have grown a bit anxious of recent price action, and implied volatility gauges of the NASDAQ 100 have moved to all-time lows, we seem to be close to a time when volatility turns back higher. For now, it will pay to respect this “neckline” trend drawn above for SPX with thoughts that ABOVE 2351 a bullish stance is required, while UNDER, its right to be bearish.
S&P 500 Chart  (INDEXSP:.INX)
The snapback recovery rally looks to have stopped dead in its tracks Tuesday, and while the pullback proved mild (0.25-.40%) it’s a bit unsettling to see prices failing to move higher ahead of a key FOMC meeting when its thought that the outcome might be completely priced in as a foregone conclusion.
While the an interest rate hike looks to be certain, the press conference and resulting questions could bring about the much desired volatility that many are looking for. Make no mistake, it’s still premature to call for a correction until we see prices undercut key support. For the SPX, this means violating 2152, DJIA-20777, NDX- 5336, and NASDAQ Comp- 5812. The more indices that turn down to take out 3/9 lows from last week, the more convincing it will be that a pullback is underway.  Breadth, along with momentum have been in correction mode since late February. Yet the resiliency in the indices price has allowed for the Averages to absorb the pullback in stocks with little or no technical damage.  This isn’t necessarily bullish unless we can see an immediate rebound that would allow breadth to begin to recover. It’s thought that indices remain vulnerable until this happens, and the longer prices sit near current levels without any subsequent rebound, the more likely it is that corrective activity will begin. Bottom line, it’s right to still bet that stocks can recover, but with very tight stops and eyes on the exits if last week’s lows are breached.
For Wednesday, most will be eyeing the action in Treasuries and the US Dollar very closely post FOMC, as yields have crept up towards December highs and have stalled in recent days.  Any talk about the timing and pace of future rate hikes will be digested immediately and prices adjusted to reflect this information. Trend-wise, patterns remain bullish for yields, a bit overbought, while sentiment is firmly bearish that yields have to move higher, as judged by “Spec” positions. The 2s/10’s yield curve has attempted to break out, while the longer range yield curves remain quite flat and seem more prone to breaking down, than any upside steepening.
Concerns in the near-term are growing given the deterioration in Transports of late, while Small-caps have pulled back vs the broader market for three months, and breadth and momentum have waned.  Some confidence in the FOMC that causes yields to push higher would likely help the Financials sector, along with stocks to continue up, but it’s looking more and more likely that stocks will need to show more consolidation to this rally than has been seen. While sentiment, seasonality, breadth, momentum, and lack of participation might suggest selling is right, we’ll need to wait for Price, the most important variable of all, to confirm this thinking.
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Twitter: Â @MarkNewtonCMT
Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.
