Here’s What To Know As Markets Brace For Central Banks

As we inch closer to Wednesday where we’ll get statements from both the Bank of Japan and The Federal Reserve on their latest policy decisions, we find the S&P500 consolidating tightly in a now 8 day range.

$SPY seen here tightening between 211.50 – 215.

spy_9_20

We know this type of tight overlapping price action ultimately leads to expansion in volatility and range, and what better catalyst to kick that into gear then central banks tomorrow?

Overall the sellers are still in control here when looking at the $SPY in isolation (objectively the $QQQs and $IWM price action are a bit more optimistic).

Reasons to be cautious:

  • 8 & 20 EMA are bearishly aligned indicating momentum (surprises) favor sellers.
  • The last point of control move back on September 9th was sellers breaking below multi-week support at SPY 216.
  • Ryan Detrick points out this is the seasonally the worst week of the year:
  • We recently had the largest move in the VIX since June (Brexit).
  • Sentiment is tricky, but I can’t help but think back to Brexit as everyone makes the comment: “there’s no way the Fed can raise”.

 

Reasons to be Optimistic:

  • After the 9/9 sell off of -2.45% markets have not been able to follow through lower.
  • We successfully re-tested the multi-year breakout area of SPY 212 and are finding stabilization.
  • We’re in a long term bullish uptrend and in that kind of environment, dips are opportunities not risks.
  • Long term measures of breadth have weakened but still remain in bullish territory (new highs, cumulative AD).

 

As you can see there’s a good case to be made on both sides of the aisle, but I think the key takeaway is that we know tomorrow will be an eventful day and there’s no excuse not to prepare – either mentally game-planing or through positioning.

As always, good luck out there, and thanks for reading.

By the way, our free webinar is this Thursday (9/22) covering our trading strategy.

This includes the setups we look for and trade everyday, the rules we manage those positions by and everything in between.

It should be a lot of fun and if it’s something that interests you then please signup here.

 

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Evan Medeiros

Evan is the founder of the Trade Risk. With 20+ years of coding experience and a B.S. in computer science, Evan brings a systematic discipline to investing in the stock market.

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