Tuesday September 21, 2010 - 11:31:00 GMT
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Stocks Trading Flat Ahead of U.S. Housing Data, FOMC Decision
equity futures markets have firmed a little since last night, but are still
trading slightly lower a little more than three hours ahead of the day session
On tradersâ€™ minds this morning is a U.S. housing
report which is expected to show the market remains fragile, a sign that the
economy is slowing. Trading could be
muted today in the equity markets ahead of this afternoonâ€™s Federal Open Market
Although the Fed is expected to keep its benchmark rate at
between zero and 0.25 percent at todayâ€™s FOMC meeting, traders are still
nervous about what the language of the committeeâ€™s statement will contain.
Here is what I expect the Fed to say:
pace of recovery in output and employment has slowed in recent months.
spending is increasing gradually, but remains constrained by high
unemployment, modest income growth, lower housing wealth, and tight credit
remain reluctant to add to payrolls.
is likely to be subdued for some time.
rates are expected to remain unchanged and at exceptionally low levels for
an extended period.
Federal Reserveâ€™s holdings of securities will be kept at their current
level by reinvesting principal payments from agency debt and agency
mortgage-backed securities in longer-term Treasury securities.
I donâ€™t expect the Fed to play with its balance sheet. Look
for it to say that it will continue to monitor the economy and act accordingly
in the future if it deems the economy needs a boost. In other words, it will
not increase the amount of its bond purchases.
Stocks are expected to continue to rise if the Fed decision
remains the same. Look for the December E-mini S&P 500 to continue to
remain strong. Now that it has broken out of its trading range, the top of the
range at 1124.50 is the new support. If this area fails, then look for a hard
break to 1104.50. On the upside, however, the chart indicates there is plenty
of room to continue to rally. 1157.00 and 1160.75 are two potential upside
targets. This gives you an idea of how much room this market has to rally if
the conditions remain bullish.
December Treasury Bonds are trading in a tight range but
making a move on the chart which indicates a slightly bullish tone ahead of
this morningâ€™s housing number and this afternoonâ€™s FOMC decision. A bearish housing starts report should drive
Technically, the T-Bonds are breaking out over a
downtrending Gann angle from the 135â€™19 high at 130â€™27 today. Short-term
traders should look for a test of the retracement zone at 131â€™09 to
A dovish tone from the Fed this afternoon could trigger an
even further move to the upside especially if the FOMC hints toward additional
T-Bond purchases before the end of the year. This news can trigger an
acceleration to a major retracement zone at 132â€™12 to 133â€™04.
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