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Everybody
is anticipating next week's FOMC decision on federal funds target rate,
due this Tuesday, Sept. 18. As of last Friday, according to the 30-day
Federal Funds futures, there is a 42% probability of a 25-basis
point rate decrease versus a 58% probability of a
50-basis point rate decrease. In other words, a rate-cut
is priced into the market already. The only question is: will the Fed
cut by 25-basis points or 50-basis points. From the Funds futures, we
are leaning towards a 50-basis point cut, but only slightly. The next question is: what are the charts telling us? Price charts: One
of the best charts to follow right now is that of the S&P 500.
Notice how we are seeing a symmetrical-triangle pattern forming
on this index. Pending a breakout confirmation, this pattern is neutral.
Now if we look at the Russell 2000 chart, the trend is again neutral: we
are trading above key support at around 740- 750, and under key
resistance at 800 even. The Dow Jones is sitting just underneath
resistance at 13 500, well above its August reaction-low at around 12
600. And the Nasdaq-100, the most bullish looking index in terms of its
price & COT chart, tested the 2025 level in early September, just
shy of its June top at approx. 2050. As
mentioned previously, the COT chart for the Nasdaq 100 looks bullish.
Meanwhile, the COT chart for the Russell 2000 is finally starting to
perk up; also notice how the large trader position decreased to
new-lows, typically a bullish indicator. The Dow Jones COT chart
continues to show no signs of life, but remains at historically bullish
levels. From the S&P 500 COT chart, we see some commercial selling
in the last two weeks, but if we look at the 3-year chart, once again
this index remains at historically bullish levels in terms of its
NET-commercial position. Commercials
continue to be sellers of the VIX at the current levels. What I find
interesting is that large-traders had their largest net-short position
when that VIX was at yearly-highs above 30. Meanwhile commercials had a
large net-long position at this exact same time. Were the large-traders
right on this market, or were commercials simply hedging risk? From a
classical COT setup this market looks bearish: commercials are sellers
and large traders are buyers. Come Tuesday, we'll see for certain... Oil: Crude oil continues to look very bullish. Critical support is at 69 and critical resistance is right around the current close, at 78-80. Notice how net-commercial position barely decreased, while oil put in an impressive rally over the last few weeks. This means that oil is looking bullish from a trend & cot perspective. We may be in need of a rest right around these levels, before we decisively breakout above 80. But as long as oil holds above its last reaction-low (weekly chart), at 69, breaking out above 80 is only a matter of time... Gold: Gold's
price chart is very similar to oil's, in that they are both sitting just
underneath record levels. The trend for gold is clearly bullish, as we
broke above key resistance levels at approx. 689 & 699 and never
looked back. Commercials are clearly selling into this rally, which is
their typical behavior. But as long as gold holds above its support
(689/699), we are either going to breakout above 730 near-term, or
consolidate first & then breakout above 730. I think gold
will consolidate first - before breaking out, but any-body's guess is as
good as mine. The US Dollar broke below critical support at 80. I previously wrote that from a COT & sentiment perspective the US dollar was painting a bullish picture. As of right now, trend is not confirming that 'picture'. There is nothing positive about this index while its under that critical 80 level. As long as we are trading under 80, one must respect the DOWN-TREND in this market. I will become neutral on the USD only if we closed above 80. A potential breakout above the upper trend-line resistance (3 year chart), at 81-81.5 would be very bullish.
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