SPX Follow Through

Yesterday, we had a follow-through day.

Trading was timid in advance of the Fed announcment. At 2:15 p.m. ET, the Fed announced it was leaving its Fed Funds rate unchanged for a 6th consecutive time.

That was expected, but what investors focused on was a change in the central bank's policy remarks. No longer was the Fed warnings that "additional firming that may be needed." The statement was not particularly benign, because they also commented that core inflation has been "somewhat elevated."

Nonetheless, buyers flooded the market. The follow-through causes us to shift our market view from a correction to a confirmed rally.

The S&P 500 added 1.7% and volume increased.

This is good news for bullish investors, but now the tables have turned and the secure feeling of owning a 1,460 - 1,470 bear call spread is gone. With the SPX having added 24 points yesterday, and now at 1,435, we must be wary of the need for a possible adjustment if the buying continues.

My nighlty MarketClub market report confirms this analysis, noting that the high-range close, as well as bullish Stochastics and RSI, are signaling that sideways to higher prices are likely near-term. Longer term, the S&P 500 is noted to be in "Sidelines Mode."

This is a very useful service because MarketClub compiles a tremendous amount of information from the equity markets, future markets, commodities and currencies to provide you with an overall sense of where things are headed. While I still read my own charts, the service provides a source of confirmation.

Needless to say, we now need to think about hedging our bearish position and will begin to consider the alternatives available to us. With four weeks between us and expiration, there is a lot that can happen. It is best to be prepared.

Christopher Smith
TheOptionClub.com