Fed eases, stock rally fades

The Fed did the expected 1/4 point drop in both the discount rate and fed funds rate. The wording was also basically unchanged from the last meeting. The is a perception that the dollar bashing phase is coming to an end, finally, and that the commodity bubble can finally pop on the rising dollar. The dollar rallied in anticipation of the possible turn, but gave back a bit after the Fed announcement. Oil is finally breaking down, which in my opinion is long overdue. The trend in crude still remains sharply up as price has been in bubble territory, so it could take some time and price oscillations before the actual trend turns down. That was the case in gold a while back, and now the trend is nicely down with all rallies failing at the declining moving averages. There should be many rallies to sell against in all these commodity markets and commodity related stocks.
spy0430.pngSince nothing was new or unexpected from the Fed, the market decided to take back early gains and close on a weak note. I previously noted that momentum had turned down and would be nice to see some pullback and re-testing into the moving averages. The light volume on the upmove was suspicious. I drew two red line from previous pivots on the S&P/SPY that seem to be acting as resistance. Price probed through the upper line on Monday and couldn’t hold, as momentum was overbought and turning down. Yesterday the close was right on the lower line, and today price closed well below it, as well as below the three day pivot (the yellow dots). Volume increased a bit on the lower day, but still light overall. It looks like the lower test scenario is the path of least resistance at this point. I might add that the Nasdaq/QQQQ looks a bit stronger in its day structure, although it too turned around to close week. The trends in both markets are still up as defined by the price structure (higher lows and higher highs) and by the trend of the moving averages. Pullbacks to the moving average could be good long entries. This breakout failure could also be a tradeable short, but swimming against the current is the more difficult trade.

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