Volatility was expected this week with the Federal Reserve Interest Rate decision on Wednesday September 21st. A rate hike is already priced in, but a more aggressive/hawkish Fed is what the markets are worried about. Put it simply, the Fed is likely to say they are not done raising interest rates and will not slow the pace until inflation falls to their 2% level.
As someone who has traded many Fed days in my trading journey, this type of price action doesn’t come as a surprise. I tell new traders that Fed week is probably the best time to take some profits and just sit on your hands. Don’t force trades. This is because the Fed decision is such a high risk event that can change trends. Major volatility.
I was speaking with traders on Monday and many were claiming the market is ripping higher. I advised caution as I just thought this was the market remaining in a choppy range until the Fed.
Turns out that was true. Turnaround Tuesday is what many are calling today’s price action.
What will the Fed do? We can only speculate. I personally think they will come out aggressive and markets will take a hit. What I think will be more helpful for readers is a rundown of multiple charts which will feel the impact from the Fed decision.
Let’s start with the stock markets. Above is the chart of the S&P 500. The Nasdaq and the Dow Jones have similar technicals.
Last week markets broke below 3900. That was our support zone which now has become resistance. Markets need to reclaim this level in order to gain more upside. Currently, we expect more downside.
Resistance is acting as it should be. Yesterday’s green day got many excited but again, keep in mind the overall picture of the markets. Yesterday’s price action was just a relief move back to the breakdown zone, and the sellers jumped in.
Honestly, the markets are just holding this range, going back to the lows printed on Friday and Monday. Choppy price action as I said, but we have a big catalyst tomorrow.
This is actually the chart which is telling me that markets are likely to head lower. The US 10 year yield has broken above 3.50% today. Strong price action for now. Just so you understand the magnitude of this break, yields have not been this high since 2011.
This is currently telling me that the markets are beginning to expect and price in a more hawkish Fed who will hint at more rate hikes tomorrow. If the daily candle closes above 3.50% then we have a breakout and it makes tomorrow even more interesting. If we close back below 3.50%, then the markets will recover.
Keep in mind, we could get a breakout today and then see a major reversal post Fed. That would be a false breakout.
The dollar will see some action tomorrow for sure. As of now, it is the calm before the storm. The dollar remains in its range and near resistance. A breakout or a breakdown is anybody’s guess.
Finally gold is also rejecting the $1680 resistance zone. Continuation to the downtrend or a reversal depends on what the US Dollar does… and that depends on what the Fed says tomorrow.
News
Continuing the central bank week, the Central Bank of Sweden raised interest rates by a full 1% saying “inflation is too high“.
UK dock workers strike is hitting supply chains. Hitting American companies like Ford.
Putin announces that occupied areas of Ukraine are to hold a referendum to join Russia.
Tesla is considering a China retail strategy reset.
Canadian Market News
Azarga Metals (AZR.V) initiates induced polarization survey on high-grade copper rich VMS project in the Yukon. The stock is up 50% with over 1 million shares traded.
Dominion Water Reserves (DWR.CN) announced the closing of final tranche of $3,350,000 private placement and the appointment of a new CEO. The stock is up 22% with over 1.7 million shares traded.
Quebec Nickel Corp (QNI.CN) adds a second drill rig to its Ducros property and begins a 3,000 metre drilling program. The stock is up 13% with over 1.2 million shares traded.
Kraken Energy Corp (UUSA.CN) announces energy samples of up to 0.32% U3O8 and increases land package at the Garfield Hills Property.
