Looking up at the Knees of Giants

Today is the day when we find out whether the Fed will be raising interest rates by 0.25%. In a normal year this might lose a contest for front page space in that event that Angelina Jolie's dog was lost on the same day, but with the last rate rise a long long long time ago, even this tiny move has assumed a great significance.

Back in the days when The Fed didn't spend all their time frantically trying to repair the appalling damage caused by previous Fed Chairmen, William McChesney Martin, Fed Chairman from 1951-70 said (paraphrasing) that it was the role of a central bank to 'take away the punchbowl just as the party was really getting going'. After Volcker in the 1980s though, a persistent deflation took hold in the quality of Fed Chairmen that is perhaps expressed best on the chart below:

These days the role of the Fed seems to be to keep the alcohol content of the punch over 10% to keep the party breathing at all, and today is where we find out whether that target alcohol content will be reduced to 8%. We'll see.

Regardless of whether the significance of this Fed move is wildly overblown though, the impact on the equity markets could still be big for psychological reasons, and the ambiguous setups on USD and bonds are telling us that we could see a serious break either way depending on both any announcement, and how that announcement is received. I'll be flat going into the Fed & would suggest that you consider doing the same.

Where are we on SPX then? Well SPX broke over the 5dma yesterday, so SPX is back on the 5dma Three Day Rule, and SPX needs to close at or above the 5dma today and tomorrow to avoid a very likely retest of the 1993 low. The 5dma is currently at 2035,

Shorter term the 50 hour MA is decent support at at 2047, and the gap fill is at 2043. If the gap fills this morning we may well see a hard flush down from there. There is a lot of resistance overhead into the daily middle band at 2069 and I've listed those on the chart below. SPX daily chart:

This is a decent morning to take off, and the tape after the Fed announcement is best played by those who are very experienced in playing this kind of tape. My lean here is towards a retracement of the move up so far from 1993, but obviously the Fed announcement may run over any setups today. The next few days will be easier to call at the end of today, when we can see what has broken.