It’s Fed Day, which means another rate hike, but I wouldn’t expect the rate increase to derail the market just yet.
You know I’m a pattern trader, so what’s happening in the news headlines has less meaning for me than what the charts are telling me.
One of the things the market does not like is uncertainty, and if we look at the chart below, it’s fairly clear what Chair Powell’s intentions are regarding a rate hike.
With a 99.6% probability interest rates will increase by 25 basis points, expectations are set, and I wouldn’t bet a small rate hike to be the catalyst for upsetting the market.
More importantly, we’ll want to listen for a change in rhetoric, because surprises in the Fed’s outlook is something that can easily escalate uncertainty and fear.
In the meantime, I’ll continue to focus on chart patterns and trends that are either repeatable or perhaps sounding alarms of change.
Volatility Is Hinting Towards Intrepidness
One of the biggest drivers of market volatility is uncertainty coupled with surprises.
Over the past 12 months we’ve seen a lot of market fluctuation due to the chaos of out-of-control inflation.
But, over the past few months I think many people have accepted the Federal Reserve’s decisions and consistency in the fight against inflation.
And that acceptance is visible in the charts.
There are two observations I can see from a charting perspective that validates declining market fear.
First, let’s look at patterns forming on the major market index itself – S&P 500 (SPX)
There are really just three things I’d like to point out in the S&P 500 Index chart above…
First, major lows of the index have become higher since the market’s low in October – which is a sign of bullish strength in the intermediate-term.
Second, the minor lows and highs have crept ever so bullishly in the fourth quarter of last year, and continued the pattern in recent weeks.
Now, the third consideration is important…
The index is now approaching the same high point it reached in September, November and December – and each time it reached the high point… it failed to break and go higher.
This puts the market at a crossroads, and we’ll likely find out in the next week or two if the index is going to continue to higher ground, or falter, and potentially head south or into a sideways pattern.
Now, the second charting observation I want you to look at is the Implied Volatility Index (VIX).
The volatility chart above highlights above average volatility in the market for the majority of 2022 – the blue rectangle.
There were a few occasions, highlighted in green, where the volatility came off its highs, but, as you can see, they were short lived before rising to extreme levels afterwards.
However, on the right side of the graph you’ll notice that market volatility fell out of the high-range zone by the end of October, and has stayed in this low range ever since – an indication of a neutral to bullish market pattern.
Although we’d certainly expect the market to trend with peaks and troughs, I wouldn’t expect extremely volatile gyrations until the VIX rises back into the upper level of its range – where it fluctuated most of last year.
Fear and market volatility will rise again, but for now we can see investors getting comfortable with the path that Jerome Powell is on.
We’ll recognize when conditions are changing, because it will be announced in the patterns.
Until then, let’s take a look at what my software is telling us about trading opportunities.
Quantum Scripts Finds Opportunities for Bulls and Bears
When I search out potential trading opportunities for my readers, I’m able to find both bullish and bearish, but as you can see from the lists below, bullish opportunities are outpacing bearish ones by a ratio of 2:1.
Tom Gentile
America’s #1 Pattern Trader
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