Today is FOMC Center Stage

The Fed is coming… the Fed is coming! Wow, you would think this is the start of the stimulus wars, but it always seems to be anticlimactic when the anticipation is this great. It is like the build up to Christmas as a kid. Sometimes it worked out just like you believed and other times it didn’t. At 2:15 pm all eyes will be on Big Ben Bernanke to hear his words of wisdom on what actions if any the Federal Reserve will take to help accelerate the economy. What happens from there will be more interpretation  of the action than result from the action… that will take months.

Some selling on Tuesday in response to the German comments relative to the ECB’s plans on the bailout the banks and countries sovereign debt to keep the euro intact. They were more posturing by Germany than anything at this point, but they show that the expectations of a solution in Europe isn’t going to be easy, and Thursday’s ECB meeting isn’t likely to produce much more than a rate cut. The S&P 500 index was off 0.4% and holding comfortably above the 1365 level of support near term. Technology ended the day positive, but the key sectors of Financials (down 0.4%), Healthcare (off 0.6%) and Consumer Services (down 1.2%) all struggled to hold the upside momentum.

Some key levels to watch moving forward for the key sectors and markets:

  • SPY, S&P 500 index ETF needs to hold support at $136.65.
  • IWM, Russell 2000 Small Cap index ETF is lagging and needs to move above the $80 mark.
  • DIA, Dow Diamonds ETF support is $127.95 and holding above $130 would be key.
  • QQQ, NASDAQ 100 index ETF support is $64, breakout above $65.31 would show leadership.
  • XLF, SPDR Financials ETF $14.40 support and a move above $14.85 key to the upside.
  • SMH, HOLDRs Semiconductors ETF needs to move above the 200 DMA with volume.
  • XRT, SPDR Retail ETF support is $58.48 needs upside push through $60.
  • XLE, SPDR Energy ETF 200 DMA holding, support is $69.30.

The markets are making progress in trends and overall consolidation patterns. The key is to maintain the progress and momentum one day at a time as we navigate the mine fields of data being released over the next three days.

The energy sector remains one of the better performing sectors of late and remains one to watch going forward. One sub-sector component picking up momentum has been the refiners. They have been part of the reason for the move higher in the oil services ETFs IEV and OIH. Valero (VLO) showed in their earnings report on Tuesday they are hitting on all cylinders. The lower and less volatile price of crude has helped increase profits. Western Refiners (WNR) and Holly Frontier (HFC) have led with gains of 75 and 60 percent gains respectively this year. Because of the higher margins the US refiners have become a bigger exporter of gasoline. This should keep the profits coming in future quarters. The stocks are worth owning and adding to your watch list going forward.

Gold has moved higher by nearly $50 per ounce since last week. Not a huge move, but a move that favors action by the ECB and FOMC. A retraction of nearly $10 on Tuesday was in response to the German comments on the funding of the bailouts for banks and sovereign debt. Germany’s response is not a big surprise as they have been against this from the beginning. However, if gold continues to move lower it will act a barometer of what the expectations are from Europe going forward. The metal is hitting against $1630 resistance after breaking from the seven week consolidation wedge. Watch gold, if it continues to the decline today the positive momentum created by the ECB comments last week may be wearing off and that could spell short term trouble for stocks, were a rally in gold would be positive for the markets. Just a thought, not a prediction.

Unfortunately it is all about news for the next three days. Watch, beware of your surroundings. Know where the exits are. Plan for the worse, hope for the best and keep looking forward, that is where the most danger lies.