FOMC Looms
After initially falling almost 1%, the Nasdaq rallied to close the session up 0.39% as NVDA stabilized and finished its session up about 1% after yesterday’s post-market conference. The Russell 2000 and S&P 500 also closed positively, though volume dropped across the board – likely in anticipation of tomorrow’s FED FOMC interest rate decision and press conference. Despite the rally and sitting less than 2% from highs, the Nasdaq managed only 2 net highs. It is an improvement from 3 sessions of net lows, but it points to very narrow leadership. Additionally, today’s volume continues the trend of declining volume on up days versus increasing volume on down days.
With little change in character and action for indexes and continued lethargic and knee-jerk action in individual stocks, it appears the market continues to be owned by the day trader who is happy to move with trends that last for a few hours at a time. For investors seeking to position in trends, there is little evidence that the recent internal distribution has ended or reversed.
With the market doing its best to fight off net lows and seeing continual distribution, a correction is not a certainty. With the FED speaking tomorrow, there is a catalyst that can provide renewed strength to the market. However, that is yet to be seen and with stocks either extended, breaking down, or lagging in RS, there are few quality stock setups to take aim at.
When a market hits an equilibrium such as now, investors seeking trends need to be wary of choppy environments. There can be days or weeks where stocks advance one day only to correct the next, leading to an endless sea of chop and losses. Therefore, with the market lacking a trend of net highs or any signs of accumulation, the market remains guilty until proven innocent. This can change in a heartbeat as we saw this past November when a follow-through day signaled the possibility of a new bullish trend. However, we need to be patient for data to confirm or we end up confusing hope with reality. Given that the FED can equally trigger a more widespread sell-off, we want to see tomorrow’s market reaction before deciding on next steps or a wave of buying early in the session can see widespread stops being hit if the FED disappoints.
Indexes
QQQ Daily - Support held strong at the $433 level today, sparking an impressive bounce. This reaffirms the critical nature of this level. If the 50MA continues its climb and aligns with this level, we'll have a powerful confluence zone. The importance of maintaining this level is crystal clear now.
Regarding the recent loss of uptrend support, I want to remind that it doesn't always spell the end of the intermediate trend itself. Looking at the chart, we've already seen two trendline breaks, yet still managed to reach new highs. I primarily use trendlines to gauge market momentum. Each break weakens the upward momentum, and the real concern arises if we lose the 50MA. At that point, I would anticipate the indexes undergo a multi-month correction.
The big question remains: will this loss of uptrend support act as just another temporary setback before new highs or lead to something more?
Key Levels
Resistance- $448, $441.1
Support- $433, $425
QQQ 30M - This is the potential scenario I see playing out IF the markets are to push higher. The key short-term level to take out is $441.5. If we manage to breach this level, it would give us a double bottom breakout on the shorter timeframes, potentially paving the way for a test of range highs. The measured move for the double bottom breakout would take us up to around $449.
Economic Calendar - Tomorrow marks the big day: the FOMC statement and rate decision at 2 PM ET, followed by the FOMC press conference at 2:30 PM. The rate decision is usually priced into the market, so it tends to be overshadowed by the FOMC Statement, which is focused on the future. It's not uncommon to see the initial reaction seen Wednesday afternoon completely reverse the next day as investors had more time to digest the feds comments. Therefore, it would be wise to avoid heavy positioning in either direction, as Thursday's price action typically holds more weight and more often then not is the move that sticks.
“…at the end of the day, the most important thing is how good are you at risk control. Ninety percent of any great trader is going to be the risk control.”
-Paul Tudor Jones
Trade Ideas
GLD Daily - The gold miners took a bit of a hit today, and the charts are not as appealing as they were yesterday, with the prices no longer hovering just below their pivot points. Consequently, the Gold ETF seems like the most promising option for trading a potential bounce attempt. I'm eyeing a pivot entry at $200.80, with today's low of $198.90 serving as my stop. I'd prefer this trigger on Thursday versus on fed day, but the market rarely gives us what we want. This can be traded with options or shares.
DKNG Daily - This morning's selling pressure was swiftly countered with a powerful reversal off the short-term moving averages, putting the $43.90 pivot within striking distance. It's worth noting that this pivot might trigger before the Fed announcement, significantly heightening the trade's risk. One approach to mitigate this risk could be to enter with a smaller position size, or alternatively, opting to skip this trade altogether. Remember, there will always be more opportunities!
BRCC Daily - Coffee related brands have been on fire lately. Love the look of this bull flag and will entertain over $5.02.
A Daily - Pulling back to the short-term moving averages for the first time since the beginning of its earnings run. Could be forming a handle here, interested if to break over $148.75.