Pre-Market Brief

Good morning. Its Fed day, at 2.15pm the FOMC announcement is made on interest rates and other policy measures. I'm not expecting QE3, although I sure expect them to overtly hint at it again.

Futures are moderately higher, sp+4pts, we're set to open 1383 or so. Market is pleased with the ADP jobs data, which came in at 163k vs 120k consensus. ADP remains highly uncorrelated though with the official govt. data.


sp'60min

sp'daily5

Summary

An important day is ahead. Bears should seek a close in the 1360s, bulls will want to break to new highs of 1395/1400. I find the latter hard to envision, although its possible briefly.

As with any fed day, the swings around the time of the annoucement will be pretty severe.

*we have other econ-data at 10am, so market will be likely to make further swings at 10am.

So, get ya popcorn ready, a long day is ahead, and by the end of today, we should have a clear direction.

Good wishes for Wednesday!

Moving into August

July closed a little over 1% higher for the SP'500. This is not exactly inspiring for the bulls, but then its still valid follow through from the early June low of 1266.

Bulls will understandably be desperate to break the April peak of 1422. The daily charts would suggest that a break under 1325 would rule that out, and would open the door to an attempted break below the 1266 low.

Its time for an update on the scenario chart...

Sp, monthly 6yr

Summary

Best guess remains B. However, that is dependent upon a few things

1. Bernanke does QE3 before this year ends, at least 500/600bn, preferably 750/1000bn
2. No EU/Euro implosion
3. The US economy does not quickly slip into a GDP -2.0% recession in Q4.  I could still envision the market rallying from any Autumn low, so long as the economy is largely holding itself together.
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As the last few months have ticked by, I'm increasingly more open to scenario C though, especially if the Fed's next QE fails to inspire all asset classes to ramp up into the end of this year. If the Fed does QE3, they better make sure its big enough to convince the mainstream that its significant enough to do 'something'. After all, perception is what its mostly about anyway.

So..lets see what the Fed does tomorrow. I personally don't expect QE3 tomorrow, but they may well overtly hint at it, and a brief post statement ramp could ensue for a few hours.

I still believe there is a very high likelihood we fall to at least 1225/00 in August, with VIX back in the mid 30s.

Goodnight from London

Daily Index Cycle update

A minor down day for the indexes, certainly nothing for the bears to get hyper about. Yet there are some hints that we are forming a top, and now have a chance at rolling over tomorrow - not least if the FOMC disappoints with no new QE.


IWM

Dow

Sp

Transports

Summary

Transports and Rus'2000 (see IWM chart) remain especially weak.

Sp' immediate downside is 1360/65 Anything in the 1350s by the end of this week should be seen as a bonus to the bears, I'd be very surprised if we can break into the 1330s at any point this week, even if the market gets seriously upset that Benny ain't giving out any new free money.

Bears should look for a tranny <5000 tomorrow afternoon if market is not pleased, it remains a massively important level.
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If Mr Market is somehow pleased tomorrow with the FOMC statement/decision, then the bull flags on the hourly charts will play out, and first target will be the 1395/1400 zone. That might still be a post FOMC euphoria that quickly fades, but its something the bears should keep in mind.
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A little more later...

ps...welcome to August. (how can it be August 2012 already?)