Weekly Wisdom: Fed Cuts 50bps

Greetings fellow traders and welcome to your September 19th edition of Weekly Wisdom: Levels to Know and Moves to Look For!

Now let’s get to what we’re currently seeing in these volatile markets and what we have our focus on going forward.

Taking a look back on this week, September 16 – 20:

• Markets are pushing higher in the second half of the week after the Federal Reserve went big on their first rate cut, cutting rates by 50bps on Wednesday afternoon, which has given $SPX futures a boost higher on a large overnight gap into Thursday’s trading session.
• Data for the week began on Monday with the Empire State Manufacturing Index giving a beat at 11.5 vs -4.1 expected. 
• Tuesday brought the final data before the Fed’s Wednesday rate decision, showing a beat for retail sales m/m at 0.1% vs -0.2% expected. However core retail sales m/m were a miss at 0.1% vs 0.2% expected.
• Wednesday was the big day this week with all eyes on Powell and what the Fed will decide to do with interest rates; Powell surprised markets a bit and delivered a 50bps rate cut which was the first rate cut since 2020.
• The street was very mixed heading into the decision, seemingly split 50/50 odds on whether a 25bps or 50bps rate cut would occur.
• Wednesday also brought updates for building permits which were a beat at 1.48 million vs 1.41 million expected, as well as housing starts at 1.36 million vs 1.31 million expected.
• Markets initially reacted in a volatile way after the Fed announcement, ending Wednesday’s session on weakness.
• However, markets gapped up in a big way on Thursday, which negated the negative price action seen Wednesday afternoon, with market participants going risk-on after the FOMC announcement.
• Thursday delivered more data, including weekly unemployment claims which were a beat at 219,000 vs 230,000 expected. The Philly Fed Manufacturing Index was also a beat at 1.7 vs -0.8 expected. The current account update was a miss at -267 billion vs -259 billion expected. Later in the morning, we saw updates for existing home sales which missed at 3.86 million vs 3.92 million expected; we also saw a beat for the CB Leading Index m/m at -0.2% vs -0.3% expected.
• Friday, September 20 does not bring any meaningful US data to end the week

Here’s what we are eyeing next week, September 23 – 27:

Level Highlights:

• $SPX futures are in risk-on mode after the Fed’s 50bps rate cut which was delivered on Wednesday, with Thursday (the day after the Fed) bringing a large gap higher in $SPX futures which cleared up over the volatile price action seen during Wednesday’s FOMC press conference. 
• The phrase “no such thing as a triple top” applies to the technicals here with $SPX futures hitting the 5650-5700 resistance area a couple of times over the past 1-2 months, with that resistance now traded through.
• $SPX futures are now trading in new all time highs, reaching as high as 5789 on Thursday afternoon. 
• Something the bulls should keep in mind is the seasonal period we are now entering for the market, especially during an election year, which often sees weakness come in mid September and especially in mid October ahead of the election.
• Should we see any weakness in the next few weeks, $SPX futures have support lower now at 5700, 5650, and 5600.
• A close down below 5650 support would bring some interest to the bears and may start to worry bulls as this could signal a failed breakout higher if it happens within the next week.
• Overall, bulls remain in control above 5700, with a potential measured move to 5850 in the works.  

Upcoming News:

• Monday, September 23 starts the last full trading week of September off with flash manufacturing PMI and flash services PMI at 9:45 a.m. ET. There are also multiple Fed speakers giving comments throughout the day. 
• Tuesday, September 24 brings us CB consumer confidence and the Richmond Manufacturing Index at 10:00 a.m. ET.
• Wednesday, September 25 delivers new home sales at 10:00 a.m. ET.
• Thursday, September 26 is a data filled day, beginning with the latest update for final GDP q/q, weekly unemployment claims, durable goods orders m/m, core durable goods orders m/m, and final GDP Price Index q/q all at 8:30 a.m. ET. Next, Fed Chair Powell is set to speak at 9:20 a.m. ET. This is followed by data for pending home sales m/m at 10:00 a.m. ET. Treasury Secretary Yellen is also set to speak at 11:15 a.m. ET.
• Friday, September 27 brings further data to end the week beginning with PCE and core PCE Price Index m/m, the goods trade balance, personal income m/m, personal spending m/m, and prelim wholesale inventories m/m at 8:30 a.m. ET. These are followed by revised University of Michigan consumer sentiment and inflation expectations at 10:00 a.m. ET.

Here’s Your Chart of the Week:

Via Bloomberg: An interesting poll here with the majority of participants expecting us to trade higher into year end after the Fed’s first rate cut took place this week.

Source

SPY Daily Update:

$SPY daily chart is breaking out to new all-time highs after the Fed’s rate cut, with a measured move to $SPY 580 in the works. Should we see any weakness due to seasonality or other reasons, there is support lower now at 568, 564, 560, and 557.

SPY Weekly Update:

$SPY weekly chart continuing higher after last week’s negation of the sell week that started off the month of September. Bulls remain in control as long as $SPY stays over 560

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-Patrick Hawe

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Patrick Hawe’s current positions:

*As of 2:34pm ET September 19, 2024

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