The S&P 500 has rallied quite nicely during the trading session on Tuesday, as we have recaptured the 3250 level, and now look primed to try to reach towards the 3300 level. The FOMC statement during the trading session on Wednesday will course have a major influence on where we go next, as a loose monetary policy statement coming out of the Federal Reserve suggests that the stock markets will rally by default. Furthermore, there seems to have been a bit of an overreaction to the coronavirus and China, so it’s likely that perhaps we should get a bit of a recovery. Even if we were to break down below the lows of the trading session on Tuesday, it’s likely that the 50 day EMA will come into offer a bit of support, which sits at roughly 3200. That of course is an area that has been supportive in the past, and is a large, round, psychologically significant figure.
To the upside, the 3400 level looks to be very resistive, but I do think that it’s only a matter of time before we go looking towards the 3500 level which is my longer-term target. Quite frankly, value hunters will continue to get involved in this market on pullbacks, and the FOMC statement could be one of the reasons. However, if they are very loose with monetary policy statement and suggest that there is even more loosening coming in one direction or another, it’s likely that the stock markets will be bought because interest rates will be driven lower yet again.
Looking at the structure of the market, it’s very likely that the uptrend channel will continue, unless of course the Federal Reserve does something to shock the markets, or some type of really bad news comes out of Asia. At this point though, it seems like we have overreacted to the Asian news so it’s likely that sooner or later we will rally. Breaking below the 3200 level would be extraordinarily negative, but at this point that doesn’t seem to be very likely to happen. Remember, the stock market has been rallying well over a decade based upon cheap money more than anything else, making this FOMC Statement something that you should always pay attention to anyway. At this point, the market is one that you should be looking for value in and taking advantage of. The market may be extraordinarily quiet between now and the announcement though.
