The FOMC decision came this afternoon, but who are we kidding, it's been made for a while. And for what it's worth, the market has already priced in that decision - to raise rates another 0.25% and hold out for the "data" to give them a better view.
Given that, I really don't care much for what the Fed says. Hell, it's honestly a little refreshing to see the Fed matter less - yes, you heard me right, matter LESS. Because if that's the case, the market would then start trading more on the fundamentals and technicals.
To that point, I'm watching and trading the developing technicals, some of which are hanging at a critical balance.
Let's take a look.
Indicator Check: S&P 500 stocks above their 50-day
This is the technical-analysis-cousin of Garrett's "Momentum Indicator."
Simply put, this tracks the percentage of companies in the S&P 500 that are currently trading above their respective 50-day moving averages (MA50). Above 50% is ok; above 50% and rising is better. You get the idea.
Here's the current chart:
We've been bouncing around the 50% mark for the last week, as the QQQ and SPY shares have been trading in a tight range at the top of their 3-to-4-month ranges. Meanwhile, the small cap iShares Russell 2000 ETF (IWM) has continued to drop like a rock.
Simply put, a move back below 45% on the indicator above will start a breadth-driven move to lower prices on the SPY.
There is no "trade" on this, just a heads up that the market may hit an air pocket, so be prepared.
The IWM
I made mention of this earlier today on Money Morning Live - the IWM is also in a make-or-break situation as it hovers just above the $170 price mark.
A break below $170 will take out the double bottom formed in January and March and likely break the back of traders that have been looking for signs of life in the risk-on trade.
At the same time, a break below that same $170 price will break the neckline of the head-and-shoulders pattern identified with the three red circles in the chart below:
There is a trade here.
Buy-to-open the IWM June 16, 2023, $170 puts using a 20% stop loss.
Pfizer Inc. (PFE)
At the stock level, the PFE chart is looking a little more in trouble than what the analysts are saying.
Shares of PFE broke below their 200-day moving average (MA200) this week, as the company provided lackluster earnings results. Keep in mind that you NEED to dazzle investors with outstanding earnings and outlooks in this market, and Pfizer gave neither.
To add to the situation, the Biden administration is rolling back more of the pandemic restrictions as we finally call an end to the pandemic. After years of benefiting from a pandemic tailwind, Pfizer returns to their boring drug pipeline, which appears aged and depleted.
The stock is nearing oversold readings from its RSI (chart below), which is why we're seeing the shares tread water above $38. But the trend is telling me that PFE stock is heading lower after a short consolidation.
Watch for a break of $38 to drop the stock to $35 in short order.
The post The Technical Balance of Power Hangs on the Fed appeared first on Penny Hawk.
About the Author
Chris Johnson (“CJ”), a seasoned equity and options analyst with nearly 30 years of experience, is celebrated for his quantitative expertise in quantifying investors’ sentiment to navigate Wall Street with a deeply rooted technical and contrarian trading style.