Fed May Trigger Wild Swing In Index and Metals
As our research team continues to pour over the charts and look for any signs of direction regarding tomorrow’s Fed news, we put together a couple the charts that may highlight some expectations and in at what the markets may do the rest of the week.
The expectations that the US Federal Reserve may maintain rates at current levels or potentially drop rates by a quarter percent leaves an open interpretation as to how the global markets will digest this news. Obviously, leaving rates unchanged would be the most benign action the Fed could take. Often though, the markets interpret this as a sign of weakness. Whereas a quarter percent decrease in the US fed rates would suggest that the Fed is preparing for future economic weakness in the US and potential global economy, yet investors may consider this as a very bullish reaction to the Fed.
Our belief is that the Fed will leave rates unchanged and possibly hint at adjusting rates lower later this year or early next year in preparation for the US presidential elections. The US economy is still moderately strong and the recent trade deal with Mexico as well as policy advancement in DC leads us to believe the Fed has no reason to adjust rates right now. Of course, a quarter percent decrease would allow the Fed to spur additional economic growth and potentially jump-start the waning housing market in the US.
This first chart of the YM, the Dow E-mini futures, highlights key price technical support and resistance that will likely come into play over the next 3 to 10 weeks. We ask you to pay special attention to the dual resistance levels above 26,500. These double resistance levels act as a double ceiling in regards to price advancement. In other words, some type of strong price advance of 27,000 would have to take place in order for the price to move beyond these resistance areas.
Should the Fed surprised the market and the market interpreted this move as strongly bullish, there is a moderate chance that the YM could advance beyond 27,000 before the end of this week or early next week. We believe the Fed news tomorrow will be interpreted as a protectionist stance and the market made move lower from current highs. Any big rotation lower after the Fed announcement tomorrow could prompt a new downside trend to retest our pennant/flag formation base near 25,000. Either way, our automated technical analysis prediction software will keep or get on the right side of the market.
Additionally, after the Fed announcement tomorrow, it is very likely that the US dollar may, under some pricing pressure and that precious metals could rocket hire and continue their advance towards $1450. Any market reaction to the downside in the US stock market and/or the US dollar would likely push precious metals well above recent highs. It all depends on how the market reacts to the US Fed announcement tomorrow, June 19.
We believe we have positioned our gold trades appropriately for the Fed news tomorrow. Either way, we believe gold, precious metals, and the miners will advance after the Fed news tomorrow. A close above $1375 in gold will prompt a very quick rallied towards $1440.
We’ll continue to watch how the markets react to the Fed news tomorrow with the knowledge that precious metals and gold should advance either way as fear and greed drive the metals higher. We’ll look for new trades near the end of next week after the Fed news shakes out the short term traders. There is nothing wrong with being on the right side of a profitable trade in precious metals and miners.
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Chris Vermeulen
www.TheTechnicalTraders.com