Pre-FOMC Charts To Watch

JC Parets
July 31, 2019

From the desk of Tom Bruni @BruniCharting

Today will be a "big" day for markets as the Federal Reserve will announce their decision on the new target Federal Funds Rate.

Currently, markets are pricing in a roughly 80% chance of a 25bp cut and a 20% chance of a 50bp cut. This means market participants have assigned 0% odds to rates remaining where they are after today's meeting.

We've been pretty clear over the last few months about where we stand regarding the different asset classes, so there's not much left to do other than wait and see how prices settle by the end of the week.

With that said, here are a few charts we're watching through Friday's close.

Here's the Russell 3000 which has successfully broken out, retested former resistance, and continued higher. The problem with the breakout in this index and many of the other major US indices is that momentum, as measured by a 14-day RSI, has failed to confirm it.

Momentum has made a lower high and in some cases has been unable to reach overbought territory at all.

These divergences need to be confirmed by price before they're meaningful, but a weekly close below 173.50 would color this a failed move and shift the bias to the downside.

Click on chart to enlarge view.

The US 10-Year Yield remains in focus as it battles with its September 2017 closing lows of 2.04. Prices confirmed a failed breakdown and bullish momentum divergence by closing back above 2.04 earlier this month, but the lack of upside momentum remains a concern.

The course in which this consolidation resolves will ultimately set the stage for the next directional move in Rates.

Breadth, both Globally and within the US has been stagnant over the last few months. There's a lot of ways to measure breadth, but here we're simply looking at the number of markets and sectors/subsectors above their 2018 highs.

If they're not above their 2018 highs they're not in uptrends.

There have been slight improvements since we first ran these stats in April, but we haven't seen enough upside acceleration in these numbers to confirm that a strong uptrend in Equities as an asset class is in place. With that said, we haven't seen them deteriorate all that much either.

Sectors & Subsector stats.

Finally, the US Dollar Index. This chart has broken more hearts over the last year than any other, whipsawing both longs and shorts between a 94.00.-98.00 range. Maybe we finally get some clear direction...or not.

Regardless, the impact of its trend (or lack thereof) has significant intermarket implications for other asset classes.

Point is, we have no control over what the Fed will do today and how the market will react, however, we do have control over how we manage risk.

The themes we're focused on can be found throughout the blog and Members can find risk management levels and targets for our open trade ideas here.

Fed weeks are generally pretty noisy and this week will be no exception, but let's stay focused on price and see how we settle at the close on Friday.

Thanks for reading and please let us know if you have any questions!

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Allstarcharts Team

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