A relatively young trader emailed me shortly after the FOMC announcement hit the wires Wednesday and asked whether FOMC days were always so slow. And I couldn't help but think back to better, more active and volatile times.
Like many of you, I remember a time when day time-frame scalpers anxiously awaited FOMC announcements. Trading volumes tended to run above average. Large, intraday swings were the norm. And as long as one kept their wits about them, several hours of reliable trading opportunities could be had. Suffice it to say, times have changed in a meaningful way.
Prior to Wednesday's late-day decline, the E-Mini S&P 500 futures (Es) were trapped in a 3.5-handle value area. That means approximately 70% of the session business was conducted within an extraordinarily narrow range. For the curious, the Es closed Wednesday's regular session with a mere 4.5-handle value area, while posting the lowest trade volume of the week. Hardly an earth-shattering session.
Before we move on to a couple of stocks and Thursday's Es trade plan, I believe it's important to take a moment and remember the FOMC doesn't have the answer key. We'd all like to believe the central bank is all-knowing, but it's not. It never has been, and never will be. It simply looks at the data on hand, and makes the best guess.
Nothing about finance, the economy or investing is guaranteed. As technical traders, we take whatever evidence we have that's relevant to our time frame and make our best guess. We make decisions based on imperfect and incomplete information. Fundamental investors, whether they want to admit it or not, do the same thing, but with various valuation ratios and sales and profit forecasts.
And as much as we'd like to believe the Fed knows how the economy is going to unfold over the next three, six and 12 months, the fact is it's making its own projections based on incomplete and ever-changing data.
That's enough about the Fed. Let's get back to stocks.
While much of the market traded sideways to down on Wednesday, we saw huge interest in a number of basic-material names. Names like Freeport McMoRan (FCX), U.S. Steel (X) and AK Steel (AKS) all surged between 7.5% and 8%. More importantly, all three stocks continue to find buyers above their 200-day simple moving averages.
There was particular interest in FCX, no doubt related to the rally in copper futures. And while it's nice to see copper futures back above $2.05, I'd be careful getting too excited about FCX while it's churning between $10 and $12, and stuck beneath its 50-day SMA.
As far as steel stocks are concerned, I can't complain about any stock close to breaking out to new swing highs above an upturning 200-day SMA, so AKS gets a thumbs up. The chart of U.S. Steel isn't quite as nice as AKS, but as long as it remains above its eight-day and 21-day exponential moving averages, I'd only be interested in trading this one long.
On the energy front, light crude oil futures remain under a bit of pressure. A test of $44.50 to $45 currently seems like a forgone conclusion. And should such a scenario unfold, I'd expect the Energy Select Sector SPDR (XLE) to drift down toward the $63 to $64 area. It's worth noting the 200-day SMA on the XLE is near $63.40.
While I am cautious with crude and the XLE, I want to make sure everyone has Transocean (RIG) on their radar. A break of $11.65 to $12 would be a meaningful and bullish development for shares of RIG, and not something I'd expect offshore drilling bulls to turn a blind eye to. I've had my eye on RIG for a while, but will wait until it makes new swing highs (above the late-April and early-June swing highs) to get involved.
Turning our attention to Thursday's Es auction, we'll begin by noting sellers entered Wednesday's auction (post-FOMC) as the contract rallied back into its declining eight-day and 21-day EMAs. This doesn't mean the bears have an edge over a higher time frame, but it does suggest they've gained support during the day time frame. In a nutshell, a responsive approach to both buying and selling makes the most sense (buying dips and selling rips).
We'll enter Thursday's auction with a focus on 2056.25 and 2070. Barring a sustained trade above 2068.75 to 2070, our baseline expectation will be for a retest of Tuesday's intraday lows in and around the mid-2050s. A failed bounce from near 2056.25 opens the door to selling toward 2049.75 and 2042.
Those looking for a sustained upswing should remain cautious and avoid adopting too aggressive an initiative stance as long as we're trading beneath 2077.50 to 2079.50. While a close above that area would suggest the current dip has run its course, that's still a long way above where the contract closed Wednesday's session.
Any trading or volume profile related questions can be posted in the comments section below, emailed to me at email@example.com or posted to my Twitter feed @ByrneRWS