SPX Double Top Ahead Of The Fed?

Good Afternoon,

It is all up to the Fed tomorrow. Or is it? I think it is a slam dunk that nothing exciting happens during the Fed announcement tomorrow. We should hear similar policy rhetoric. There just isn't a chance Bernanke could spook the markets a second time and then leave it to his minions to bail him out. The only possible firework could be about Bernanke himself - his future in a government role. He could allude to his future at this meeting or the next FOMC meeting where there is a press conference to follow the statement. It is always a good idea to go to www.federalreserve.gov and print out/read the statement after it is released. I even file it away and refer to it in the future to see any language changes as those subtle language changes are what creates the possibility of "Fed rhetoric excitement".

As far as the technicals are concerned, USO is coming off its recent highs. If you own it, what strategies could you use to defend your holdings. Similar strategies could be used for the SPX as it holds the 1700 level. But, any strategies used/in place have to be managed carefully as Bernanke could easily cause the markets to gap higher. Lower too I guess, but not as likely. But hey, that is why they play the game - you never know...similar to traders showing up each day as you never know.... 

Getting back to SPX, could it double top at 1700? I know that the pshycholigical level held, but I am never keen on putting too much weight on "just" a psychological level. I like to use other reasons like double tops, resistance, trendlines, etc... Hard to put too much weight on the technicals when Central Banks are leading the markets. That reminds me, keep an eye on the Bank of England and the ECB on Thursday. Will they be in concert with the Fed? Again, likely, but you never know. Then we wrap up with the employment report on Friday. I am still sticking to my consensus estimate around 170-175k.

A quick double top example. Traders like them because they are measurable. You can measure the distance from top to trough and a true double top should make that move twice. Once from the second top back to the trough (neckline) and a second time from the neckline to the exhaustion point. A nice risk to reward setup with pre-defined levels of entry, an exit for a loss and an exit for a gain.

Past performance is not indicative of future results

In forex, I have talking about the possibility of a small inter-market relationship. With equities going up and the USD going down. Now, equities are sideways to down a bit over the last 5 trading days and same with forex pairs against the USD. So, USD is strenghening a bit when the equity markets come off slightly. Here is a chart of the GBP/USD:

Past performance is not indicative of future results

Happy Trading and Be Environmentally Cool

Coach Brian