The Federal Reserve released their statement and rate decision this afternoon, and as expected, there was little change.  They kept rates low at 0% and admitted to being cautious on the economic recovery for the rest of the year.  They mentioned that economic activity is "leveling out", which is an improvement from the "stabilizing" wording that they used back in June.

Many people have been waiting for the Fed announcement after the recent bullish run in stocks, waiting for potential opportunity to jump on board short positions and ride the market back lower.  People have been trying to fade the recent rally all the way up, and there are still many bears out there that are waiting on the next shoe to drop.

Although a sell-off in the markets is still possible, I don't think it's probable.  To justify that, let's take a look at the charts.

First off, let's look at the S&P 500 Index, because it's the best representation of the overall market.  The daily chart below has been very strong since the early July lows, and it broke through the 200-Day moving average (purple line) like a warm knife through butter.  We are seeing some hesitation around the 1000 level, but that is to be expected at round resistance levels.

S&P 500 (SPX) - Daily

The weekly chart paints more of a compelling picture of future bullish opportunities in the markets.  I have drawn three horizontal lines around 900, 1000 and 1100 which were key levels on the downside last fall and are now key levels on the upside for this fall.  As you can see, the break below 900 took a while last fall, but once that support was finally broken, the fall was fast.  The opposite took place this summer, as stocks ran up into the resistance at 900, hesitated, and then finally broke higher.

Now that we are around 1000, there is some concern that the markets have moved too quick, too fast.  I think that we just saw a mirrored effect from what happened last fall as investors realized that stocks were not going to fall off of a cliff anymore.  There is much less resistance at 1000, so 1100 could be a very distinct possibility in the next few months.

S&P 500 (SPX) - Weekly

Still not convinced?  take a look at the US Dollar.  The SPX and the US Dollar move inversely, so the market rallies when the dollar weakness and vice-versa.  The Dollar is around near term lows, and has broken the support around 23.50, but recently rallied higher.  If we get some activity in the US Dollar outside of the lower bands again, the Dollar could weaken very quickly, spurring a further rally in stocks during that time.

US Dollar Bullish ETF (UUP) - Daily

After looking at the SPX charts, which are bullish, and the US Dollar charts, which are bearish, there are multiple factors working for a continued run in stocks.  Keep a close eye on the Dollar, and that will give you an edge on your competition.  Most traders mistakenly only follow stocks, and the markets are so broad that you need to pay attention to more than one variable.  When you do, you will be happy with your success.

If you are interested in trading the US Dollar or currencies in general, give us a call or email smart@bigtrends.com This e-mail address is being protected from spambots. You need JavaScript enabled to view it .  I manage the SMARToptions portfolio and instituted currency options trading two months ago.  Currencies are very trending, so they present great trading opportunities if you know when to jump on board.

Trade Up!

Scott Downing,
BigTrends.com
1-800-244-8736