Wednesday, September 14, 2016

S&P 500 In No-Man's Land

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*The market broke, but it has not found solid ground.
*The solid ground it seeks is likely below current levels.
*Market uncertainty surrounds rates right now.

*Rates and monetary ease were the very drivers of markets. Uncertainty on these core drivers likely provides more downside until we hit some support.

The market has sold off as fear set in about the FOMC meeting. That said, a rate hike is still not priced in to stocks. There is a lot of uncertainty around rate moves right now. Rates were the very driver of the market since 2008. Questions on that driver should pressure markets lower. We think markets need to find some solid ground around 209-212.
Let's start with a chart.
Source: Interactive Brokers.
Above you have the S&P 500 ETF (NYSEARCA:SPY). The market broke out to the upside on July 8th. The breakout from that point marks longer-term solid ground.
Up above the market you have 217.75, which was a key level we said broke August 25th and August 31st. That helped predict, to some degree, the breakdown on Friday.
Either the market needs to make it back up to where it was, or it needs to go down to the lower levels. We'd guess that the market doesn't stay in the middle. Usually it will fill a gap down or bounce back up and hold the break. In the middle is no man's land, limbo, whatever you want to call it.
Because of the unknown outcome of the Fed we'd expect the market to gravitate lower. The market is not expecting a rate hike but it is possiblethat they hike rates next Wednesday.
No Change In Market Pricing A Rate Hike

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