Fed Decision?

As expected, at 2:15 today the Federal Reserve made its decision not to raise rates (thank God!), and released its short statement summarizing its assessment of the economy now and in the future. Here is a copy of the actual Fed statement. And, as I indicated to you in class, the media provided an anal and microscopic evaluation of this statement compared to the previous one (click here).

How did the stock market react? Below is an image of the S&P 500 using 15-minute intervals (click to enlarge). Look this over, as a number of the key elements for reading market momentum show up. First, note when the announcement occurred at 2:15. The initial reaction was very positive (large up bar). But, that wasn't sustainable, as the RSI(9) showed an overbought reading (above 70). The next 15 minutes, we see a classic illustration of what happens when momentum diminishes -- a bar with a significant upper tail. This indicates that the bulls were able to push price fairly high, but the bears ultimately beat them back. For that bar, note the close (of the 15 minutes) was almost identical to the open. In the next bar, the open was above the prior bar's close, but things got bad for the bulls as the bears were clearly in control at this point. Take a look at the last bar of the trading day - a large range, the bears were clearly in control by then, and the close was almost at the low for that 15-minute period.


The day ended with an ugly price bar, but a glimmer of hope for tomorrow -- the RSI was giving an oversold reading (was below 30). If price should continue to fall, how low can we expect it to fall? Let me restate this: where is the next level of support? To find this, use the rule from class: look to the left. In other words, extend the time period of the chart. In the second graph (click to enlarge), I have extended to 5 days. From this, we are able to see the next level of support at around 1058.

Let's see what happens tomorrow.

Follow Up on GE

A few days ago I wrote a post about a classic bottoming pattern displayed by GE. Now that trading for the week has ended, I want to quickly revisit GE. The chart shows price action for Thursday and Friday (click to enlarge):

Notice that GE outperformed the market on the two bad days that ended the week. Its relative strength (below chart) turned up signifying this fact. Also, while GE is still oversold, it is less oversold than it was on Wednesday. Finally, look at the price bars (I omitted volume to unclutter the chart). There are higher lows, which is good, but we have yet to exceed Wednesday's high.

The fact that GE's price withstood a big down day on Thursday is something to pay attention to. Keep checking to see how this plays out.

I will finish this post with a look at GE from a weekly perspective. How does this week's price action show up? The weekly chart is given below (click to enlarge).

Note that the price bar for this week has a large lower tail, indicating that the potential bottoming we observed with the daily charts is beginning to show up on the weekly level. Weekly volume also shows a surge, consistent with the daily result from Wednesday. Also, the RSI indicates that GE is the most oversold it has been since December (the period of this chart).

As a rule, you should always look at daily and weekly charts before deciding whether to purchase or sell stocks. Daily charts contain a lot of "noise," based on day-to-day fluctuations that might not reflect the overall trend. Weekly charts smooth the daily fluctuations out.

So, the weekly chart has not yet given a buy signal. We require confirmation of the pattern with price next week going above last week's high. How likely is this? I recommend checking the upcoming economic data for next week to see if any potential "land mines" exist. Then, follow the daily and weekly price data in that context.