
Why Stocks May Go Down After Friday's Post-Fed Meeting High
Last week, after the latest Federal Open Market Committee meeting, many market strategists and pundits had positive comments and stock outlooks for the remainder of 2015.
This is not the first time the technical charts for the major stock averages have had a positive reaction to the Federal Reserve group's meeting. If history is a guide, they may not stay positive. Here's why.
The major equity averages have set highs in reaction to the last three FOMC meetings. For example, the S&P 500 I:GSPC traded as high as 2,111.60 on July 31, two days following the Fed statement. This index did not bottom until the low of 1,867.91 during the flash crash of Aug. 24, termed "Black Monday" in China. Following the next Fed statement on Sept. 17 the rally off the low peaked at 2,020.86 that day. The subsequent low of 1,871.01 was set on Sept. 29. I described this volatility as bungee jumping.
Last Friday the S&P 500 set its October high of 2,094.32, and the close of 2,079.36 was below its prior day's low of 2082.63 on Oct. 29. Technicians call this a "key reversal" day. The Dow Jones Industrial AverageI:DJI also ended last week with a key reversal. The Nasdaq CompositeI:IXIC set its post-FOMC high of 5,095.69 on Oct. 28 and closed Friday at 5,053.75, below the Oct. 29 low of 5,066.89.
Let's take a look at this week's scorecard, the technical charts and the key levels.
The Dow Jones Industrial Average closed at 17,664 on Friday, up 8.5% in October cutting the year to date loss to just 0.9%. The average is now 3.7% below its all-time intraday high of 18,351.35 set on May 19.
November begins with a key monthly level of 16,773 with a weekly level of 17,871. The upside potential remains 18,603 to 18,802 by the end of 2015. However, it there's another bungee decline this average can plunge to as low as 14,557.
Here's how to trade the Dow 30 using the SPDR Dow Jones Industrial Average ETF (DIA) - Get Report , aka Diamonds.
Here's the daily chart for this exchange-traded fund.
Courtesy of MetaStock Xenith
Diamonds had a close of $176.49 on Friday, down just 0.8% year to date after a gain of 8.5% in October. The ETF is 3.7% below its all-time intraday high of $183.35 set on May 20. Failure to hold the 200-day simple moving average of $175.64 is a warning. The first downside is to the 50-day simple moving average of $166.92.
The uptrend connects the low of $156.29 set on Aug. 25 through the low of $159.18 set on. Sept. 29. This trend comes in at $163.14 mid-November. The Aug. 24 low was ignored because it is an unreasonable level that was allowed by the New York Stock Exchange when they invoked Rule 48 at the open that day. Trade executions were horrible!
Investors looking to buy Diamonds should place a good till canceled limit order to buy the ETF if it drops to $167.52, which is a key level on technical charts until the end of November.
Investors looking to reduce holdings should place a good until canceled limit order to sell the ETF if it rises to $178.45, which is a key level on technical charts until the end of this week.
The S&P 500 had a close of 2,079.4 on Friday up 8.3% in October and up 1% year to date and 2.6% below its all-time intraday high of 2,134.72 set on May 20.
November begins with a key monthly level of 2,002.1 with a weekly level of 2,097.4. The upside potential remains 2,156.6 by the end of 2015. However, it there's another bungee decline this average can plunge to as low as 1,558.2.
Here's how to trade the S&P 500 using the SPDR S&P 500 ETF Trust (SPY) - Get Report , aka Spiders.
Here's the daily chart.
Courtesy of MetaStock Xenith
Spiders had a close of $207.93 on Friday, up 1.2% year to date, and up 8.5% in October and is 2.7% below its all-time intraday high of $213.78 on May 20. Failure to hold the 200-day simple moving average of $206.22 is a warning. The first downside is to the 50-day simple moving average of $198.10.
Investors looking to buy Spiders should place a good till canceled limit order to buy the ETF if it drops to $119.85, which is a key level on technical charts for the month of November.
Investors looking to reduce holdings should place a good until canceled limit order to sell the ETF if it rises to $209.29, which is a key level on technical charts until the end of this week.
The Nasdaq Composite had a close of 5,054 on Friday and the Nasdaq 100 had a close of 4,648.8. These tech-heavy indices were up 9.4% and 11.2% in October, and up 6.7% and 9.7% year to date, respectively. These indices are 3.4% and 1% below their all-time intraday highs of 5,231.94 and 4,694.13, respectively, both set on July 20.
The Nasdaq has a key level of 4,934 in November with key levels of 5,061 and 5,072 in play until the end of the year and this week, respectively. The downside risk remains 3,901 into year end. The Nasdaq 100 has downside risk to 3,660.
Here's how to trade the PowerShares QQQ Trust ETF (QQQ) - Get Report , known as QQQ.
Here's the daily chart.
Courtesy of MetaStock Xenith
QQQ had a close of $113.33 on Friday up 9.8% year to date and up 11.4% in October and is just 0.9% below its all-time intraday high of $114.39 set on July 20. The first downside is to fill the gap to the Oct. 22 high of $109.80 with the 50-day and 200-day simple moving averages of $105.69 and $107.50, respectively.
Investors looking to buy QQQ's should place a good till canceled limit order to buy the ETF if it drops to key levels on technical charts of $110.87 and $108.29, until the end of the year and to the end of November, respectively.
Investors looking to reduce holdings should place a good until canceled limit order to sell the ETF if it rises to $113.83, which is a key level on technical charts until the end of this week.
The Dow Jones Transportation Average had a close of 8,128.07 on Friday up 4.4% in October and down 11.1% year to date and 12.7% below its all-time intraday high of 9,310.33 set on Nov. 28. 2014.
November begins with a key monthly level of 7,421 with a weekly level of 8,361 and a key level of 8,495 in play until the end of 2015. The downside is to 7,289 by year end.
Here's how to trade Dow Transports using the iShares Transportation Average ETF (IYT) - Get Report , aka Transports.
Here's the daily chart.
Courtesy of MetaStock Xenith
Transports had a close of $146.08 on Friday down 11% year to date, and up 4.4% in October and remains in correction territory 12.9% below its all-time intraday high of $167.80 set on Nov. 28.
You cannot say that stocks remains in a bull market with transports in correction mode. The horizontal lines are the Fibonacci Retracements measured from the all-time high of $167.80 set on Nov. 28 down to the "Black Monday" low of $128.28 set on Aug. 24.
This ETF began the week above its 50% retracement of $152.71 then gapped below it to a test of its 50-day simple moving average at $143.60 just above the 38.2% retracement of $143.35.
Investors looking to buy Transports should place a good till canceled limit order to buy the ETF if it drops to $142.22, which is a key level on technical charts until the end of November.
Investors looking to reduce holdings should place a good until canceled limit order to sell the ETF if it rises to $151.90 which is the 200-day simple moving average.
The Russell 2000 had a close of 1,161.86 on Friday up 5.6% in the fourth quarter and down 3.6% year to date, and is still in correction territory 10.4% below its all-time intraday high of 1,296.00 set on June 23.
November begins with the small cap index below key monthly and weekly levels of 1,165.40 and 1,169.49, respectively. The downside risk remains 954.08 by yearend.
Here's how to trade small caps using the iShares Russell 2000 ETF (IWM) - Get Report .
Here's the daily chart.
Courtesy of MetaStock Xenith
The small cap ETF had a close of $115.34 on Friday down 3.6% year to date, up 5.6% in October and still in correction territory 10.7% below its all-time intraday high of $129.10 set on June 24.
You cannot say that the stock market remains in a bull market with transports in correction mode.
The horizontal lines are the Fibonacci Retracements from the all-time high of $129.10 set on June 24 and its Sept. 29 low of $106.99, which is below the "Black Monday" low of $108.26. The small cap ETF has been trading back and forth around its 38.2% retracement of $115.42 and its 50-day simple moving average of $113.90.
Investors looking to buy the small cap ETF should place a good till canceled limit order to buy the ETF if it drops to the 23.6% retracement of $112.19. The risk into the end of 2015 are key levels of $97.04 and $94.97.
Investors looking to reduce holdings should place a good until canceled limit order to sell the ETF if it rises to the 50% retracement of $118.04.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.














