The Federal Open Market Committee cut interest rates a quarter point on Wednesday as was widely anticipated but offered no clear signal as to further cuts. At the press conference that followed, Chairman Jerome Powell made it clear that the Fed was ready to act further as needed but currently was not forecasting that the economy would fall into a recession.
There was nothing surprising about this news. The indices sold off slightly at first but then rebounded and closed at the highs of the day. The indices were close to unchanged for the day, which has been the pattern lately no matter what the headlines might be.
With the Fed now on hold until its next meeting in October, market players will be looking for a new catalyst. Negotiations with China on trade are set to resume next week and there will be careful parsing of all economic news to gauge whether the much-expected recession will turn into a reality.
Technically the indices are in good shape. The S&P 500 has formed a cup-like pattern over the past six weeks and technical traders will be looking for a test of the recent highs to signal a possible breakout. The bearish technicians will be looking for a double top to form and for the gap on the chart from two weeks ago to be filled. There is strong support at the 50-day simple moving average around 2950 of the S&P 500.
The market is in a news vacuum currently as there are still a couple weeks before the end of the third quarter and there is no immediate news on the horizon. Central banks around the world will be making their rate decisions. Most of them have dovish inclinations and that will help to boost the market.
At this point, the bears hope their negative narrative about a slowing economy, high valuations and an impotent Fed will take hold, but this market has been loath to embrace the pessimism. The mood has not been overly optimistic and that is part of the reason why there has been underlying support.
I covered index shorts into the weakness on Wednesday and have no position in indices at this time as I see no clear setup. I hope the market will shift its focus from the big picture and allow some individual stock picking to develop. The macro focus recently has made it tough to pick individual stocks, but without any major events on the horizon there should be more interest in finding some good individual stocks that might outperform.
The S&P 500 looks to be developing a new trading range with support around 2960 and overhead resistance at 3020. There was a month-long trading range in August and conditions look to be similar again.
I'll be focused on looking for stock picks and will not try to anticipate the next move in the indices at this time.