The SPDR S&P 500 (NYSE: SPY) has been shaky since Federal Reserve chairman Jerome Powell spoke before the U.S. Senate’s banking committee on Nov. 30 and spooked the markets by signaling the Fed’s policy may shift toward accelerating the taper of monthly asset purchases.
At 2 p.m. EST Wednesday, the Federal Reserve will release the minutes from its policy meeting and investors are also waiting to hear whether the Fed plans to hike interest rates sooner to combat escalating inflation.
The markets may have already priced in a sped-up reduction of monthly bond purchases, which could lead to rate hikes coming sooner than previously anticipated because over the four trading days following Powell’s comments the SPY pulled back about 2.8% before bouncing back up toward its all-time high.
If the Fed’s decision comes out more dovish than Powell indicated in November, it could unleash the markets to the upside and the rapid spread of the omicron COVID-19 variant may force the Fed’s hand to adhere to its original plan of action.
Traders and investors also have the December monthly options expiry on their minds and will be watching to see how institutions go about rolling out their options into January.
The SPY is likely to trade within a tight range going into the early afternoon before reacting to the Fed’s decision and on Tuesday the ETF printed an indecision candlestick as it awaits the event.
The SPY Chart: On Tuesday, the SPY printed a long-legged doji candlestick on the daily chart after gapping down 0.62% to start the session. A long-legged doji candlestick represents uncertainty among traders and investors but when found at the bottom of a trend can indicate a reversal to the upside is in the cards.
If Tuesday’s $243.50 low-of-day price marks a reversal, it will also act as the higher low of a possible new uptrend, which could bring the SPY to a new all-time high going into the new year where many traders expect a “Santa Claus rally.” If Tuesday’s daily candle marks the higher low, the SPY will then need to trade above the $470.90 level to print a higher high and confirm the trend.
The SPY is trading below the eight-day exponential moving average (EMAs) and in line with the 21-day EMA, with the eight-day EMA trending above the 21-day, which leans bullish. Traders will want to see the SPY regain support of the eight-day EMA by the end of Wednesday’s trading session to feel confident going forward.
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- Bulls want to see big bullish volume come in following the Fed’s decision to push the SPY up over a resistance level at $463.75, which will allow the ETF to regain support of the eight-day EMA. Above the levels, the SPY has resistance at $467.15 and the previous all-time high of $473.54.
- Bears want to see big bearish volume come and drop the SPY down toward a lower support area at $458.49. Below the level there is further support at $454.05 and $447.06.
- Photo: Federal Reserve building. Dan Smith via Wikimedia Commons
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