FOMC Taper News Day

Today is likely to be dominated by the FOMC Announcement at 2 PM. That announcement seems likely to contain details of when tapering will start, the scale and structure of any taper, and possibly a draft timescale for the tapering to zero of QE3 over the next year or two. This is significant market moving news so many traders will be avoiding carrying any exposure into the announcement.

Yesterday's action  was bullish from the start with a strong close, so the previous day's topping tail was not confirmed and SPX rode the band up, closing within the range I gave in the morning in the case that SPX did not confirm a short term top. If we see the same today then the closing range should be in the 1710-3 area, and with the current all time high at 1709.67, that means that we may well see a new high today. With both the topping tail negated and the negative divergence on the daily RSI 5 wiped out by the rise yesterday, I can't see any strong technical reason to expect a significant high to be made today, particularly as there is no divergence on the daily NYMO either. SPX daily chart:

A new all time high is in range today as I said, and I would expect the close to be within a point or two of where the daily upper BB closes if SPX continues to ride the upper band up. At this stage I would normally not expect a punch (closing basis) above the upper band, but with the FOMC announcement today that's harder to say. The weekly upper bollinger band is in the 1720 area and I'm not expecting a weekly close above that, I also have broken rising megaphone support in the 1725 area, and would expect a reversal there if that is hit.

The SPX 60min pattern is the rising wedge I posted yesterday. The lower trendline is less well formed than I like but it is in play here. There is now of course a nice looking potential double top on this chart are we are now in the right range to make a decent second high for that pattern, which I would see as lower probability over 1730. SPX 60min chart:

On ES I have rising channel resistance in the 1711 area at the moment, and strong support in the 1692-5 area. ES 60min chart:

On other markets CL declined into the 105 area at falling wedge support I was looking at yesterday morning and bounced strongly there. The falling wedge has broken up and I am expecting CL to retrace to the 105.5 to 105.75 area (IHS scenario) or to test the lows (double bottom scenario) before a larger rally. CL 60min chart:

The rally setup on GC still looks decent, and I'm not expecting the falling channel there to break down, but GC made a lower low overnight below the important 1300 support area. We might see that overnight low retested before a stronger rally into channel resistance. I have short term declining resistance at 1312 and a break over that should deliver that rally into channel resistance, currently in the 1350 area. GC 60min chart:

I've been giving USD some thought this week and one thing I'm watching carefully is what happens when EURUSD tests the top of the trading range since May between 127/8 and 134/5. We may well see the second high of a double-top there that would take EURUSD back to the bottom of the range. A break up there would obviously look very bearish for USD. EURUSD 60min chart:

TLT traded within Monday's bearish engulfing candlestick yesterday, so that bearish signal is not yet confirmed. Obviously FOMC is a huge wild card for bonds today so I'm giving TLT another day to confirm or fail to confirm the bear signal. TLT daily chart:

Lastly the AAPL falling wedge I posted yesterday morning broke up and there is a very good chance that the retracement on AAPL has bottomed or is bottoming. We could see a retest of the lows for a double-bottom, and I also have a possible IHS neckline in the 478 area. AAPL 60min chart:

On May 22 Ben Bernanke said that he would expect to finishing off tapering QE to zero as and when US unemployment hit 7%. With US unemployment now at 7.3% that raises some real questions about how long QE will be allowed to continue, as to stay within that timetable aggressive tapering would need to start now. On the other hand noises are being made about how the unemployment figure is greatly flattered by falling participation in the workforce, now back down to levels last seen in the mid-70s. That's a good point, though that has obviously been the case for years. The Fed board are generally a very doveish bunch and in recent years their policy tightening bark has been meek and their policy tightening bite mainly theoretical. I would expect any tapering announced to be modest at first, spread over an extended period, and structured to avoid alarming asset markets, but I might be mistaken. We shall see. If they tighten aggressively we could obviously see a major high made today.

Dealing with Rejection

I came into yesterday assuming that we would see a bit of a pullback during the day, and then would most likely make a new 2013 high this week on SPX as the weekly upper bollinger band (BB) was tested. That could still happen, but yesterday's strong rejection from the open and weak close was characteristic of a high, and the short term high may be in. Also, though there was some action above the daily upper BB (which rose by ten points) yesterday, the body of the daily candle was under the upper band and the close just underneath it. This suggests strongly that at the least the daily upper BB is likely to be respected as resistance today and I would put the maximum likely closing range in the 1703-7 area. We may well see much more bearish action to fill yesterday's open gap however. SPX daily chart:

So if we retrace this week what are the targets? They've moved slightly from last week but the key targets are the 50 DMA, the daily middle BB and the weekly middle BB. These are currently at 1674, 1658 and 1657 respectively. There is an open gap just over 1670 SPX of course and there are good arguments for both target areas, in effect in the 1670-5 and 1655-60 areas. SPX weekly chart:

On the SPX 60min chart I gloomily noted yesterday morning that my decent resistance trendline was likely to be broken, as indeed it was. However the morning high established another resistance trendline and I have what looks like a steep rising wedge from the 1640 low. I'll be watching that today and would note that I have possible rising trendline support in the 1657 area currently. SPX 60min chart:

On ES I was not taking the possible rising channel on the 60min chart seriously yesterday, but it has my attention this morning. Channel support is currently at 1653/4. I have marked in a little double-bottom with a target at 1693.75 that is playing out at the moment. ES 60min chart:

Bonds rallied strongly into the the morning yesterday, but turned down in the afternoon to close the day having made a daily bearish engulfing candlestick. The rally setup on TLT and ZB still looks very good here but that is a nasty candle and I'll be watching that for a day or two to see whether it follows through. TLT daily chart:

CL has been forming a nice looking falling wedge on the current decline. These are 70% bullish of course and if CL reaches wedge support in the 105 to 105.25 area that would be an interesting place for a long entry. CL 60min chart:

There's a nice looking double-bottom setting up on GC here on strongly positive 60min RSI divergence. I've marked the target and resistance levels on the chart. GC 60min chart:

Lastly AAPL where a very nice looking falling wedge has formed from the last high and this looked very promising at the close yesterday with a slight bullish overthrow and recovery. With AAPL at 447 in the premarket it is possible that AAPL may gap under wedge support at the open. If so that might turn out to be a breakaway gap under support, at which point it's important to remember that these patterns break downwards 30% of the time, and in my experience are rather better at making target when they do. If we see a strong break down on AAPL here the wedge target would be a test of the 2013 lows. AAPL 60min chart:

The bulls were MIA yesterday and that leaves us with an unconfirmed top this morning. If the bears are MIA today as well then I'd expect an early high and then a move to try and fill yesterday's open gap. If we see yesterday's lows taken out today, then the obvious retracement target areas are in the 1655-60 and 1670-5 areas. On the bull scenario SPX would reverse there and move onward to glory, on the bear scenario support there would break, in which case the next support levels would be rising support from 1343 in the 1640-5 area and the current retracement lows. I'm leaning towards more downside short term, and favor the bull scenario after that.