2:27 pm EDT:  The least likely scenario (with 20/20 hindsight) has played out–nothing–a 5 point range 10 minutes afterward.  A break of the 899.50 to 904.25 range will determine direction, but we no longer expect any significant short covering rally.  The tone of the Announcement is slightly bearish for equities as the FOMC is getting more hawkish on inflation, though they have pledged to the target rate low for an extended period.

The ES has broken through a few resistance levels but has stopped short of a day-session-only price gap area beginning at 907.75 (extending to 914.00).  We would not even be surprised to see this gap filled ahead of the FOMC announcement at 2:15 pm.  Per our early morning report, we analyzed price action in the S&P 500 when the Federal Funds Rate approached its 0.25% ceiling target since it was instituted on Dec 16, 2008 and found nothing particularly insightful.  On the announcement, be aware of the 2/3 chance of a 3 wave impulse that sees continuation and a 1/3 chance of a reversal from the initial move.  A breakthrough 920 could see significant additional gains for the day.  Failure there could see a large reversal.

The Precise Take – Markets slightly stronger overnight ahead of FOMC meeting

Yesterday, the ES made a low of 884.25, which was a bit higher than we would have liked to be “the” low of the down move from contract highs.  The scenario we outlined yesterday that lead to a short covering rally on the FOMC Announcement saw a shakeout of weak longs below 880.00, which did not happen and is less likely to happen today. The shakeout would provide added fuel to any short covering rally.  With New Home Sales at 10:00 am and a 5 Year Note Auction at 1:00 pm ahead of the 2:15 pm Announcement, we could see volatile trade as volume should be below normal prior to the Announcement.  The $40 B 2 Year Note Auction yesterday was the strongest in two years, though the yield curve spectrum was up slightly, partly due to…

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