Summary:
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Wall St to open little changed after Wednesday’s rally
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US30 at possible resistance after 2000 point rally
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Fed decision this evening (7PM GMT). No change widely expected
Wednesday was a great day for US stock market bulls, with the S&P500 (US500 on xStation) posting its 2nd largest post-midterm election day gain of all time. A rally in excess of 2% has only been bettered by the 4%+ gains seen back in 1982 and after a tumultuous October, investors are growing more confident once more. The US30 rallied 650 points from low to high on the day and now trades around 2000 points above the low seen on the 29th October - an incredible rally of % in just 7 full trading days with almost ⅓ of that occurring yesterday!
After a move of this scale and size it is often tempting to ask if the market is overbought and whether it has gone too far too fast. Looking at the RSI on a daily chart of the US30 we can see that even after these gains it still comes in just a smidgen above the 60 mark and still a fair distance from the 70 level that is often seen as denoting an overbought market. Another technical tool traders can use to judge whether a move has been too extreme and is overdone is Bollinger bands and whereas the RSI didn’t offer much to those searching for this, the Bollinger bands do.
The US30 has rallied strongly since the beginning of last week with the market higher by more than 8% since last Monday’s low. Price has reached the upper Bollinger band however and the region from 26205-26350 could offer some resistance to further gains. Source: xStation
The market has rallied into the upper Bollinger band and this could be seen as a sign that the market is primed for a pullback. When looking for reversion to the mean it is worth remembering that even though a market is overbought and has rallied strongly it can keep rising. Therefore it is important to view these signals in conjunction with swing levels on the chart and ensure that risk is managed by appropriately placed stops. There is something more here for shorts in that the region from the recent high of 26205-26350 has previously acted as a swing level, first as resistance back in early September and then support once it was broken above - the strong break down through this level around a month ago was the start of the sell-off in earnest. Should the bulls be able to break up above this region (26205-26350) then the bulls will be firmly back in control of the tape and a retest of the all-time high around 26960 looks more likely.
The economic calendar is pretty light for the forthcoming session with the Fed rate decision at 7PM GMT the standout event. Expectations of a change are low due to the lack of an accompanying press conference and these meetings have been duds by and large in recent years. Having said that, there will be a time when the Fed surprise markets at one of these and as always it is well worth keeping an eye on. Other than that the Initial jobless claims inline with estimates (214k) for the past week, down by 1k on the prior reading and providing further evidence that the labour market remains strong and tight.
