Again, there isn’t much of a valuation drift lower. What I can perhaps point out which is more meaningful for an important news day like today is that we have made higher lows over the past 4 trading sessions which is from about Thursday in the prior week. Overnight thinned out at 497 total contracts traded at about 6 am which was the time for the ONL of 4231.25. We have FOMC today at 2 pm so this premarket report while being of use into that timeframe will not make much sense beyond that when the interpretation of FOMC statement begins and participants begin positioning themselves into the quadruple witching event on Friday and beyond.
Possible Scenarios
Use the support and resistance grids today more mechanically. Expect solid resistance at the previous all-time high of 4858.25 made in the ON hour and decent support at 4225.75. My ideal long trade would have me positioning somewhere between 4223.75 and 4230.50 and looking for that resistance point as a potential profit target into the FOMC. If unable to get in at that price, it is advised to sit the sidelines through the 2 pm announcement with equity index futures currencies, bond futures and metals.
Intraday short-focused participants will likely jump in short between 4251.75 and 4246.75 in that 6-point range. It may lead to a head fake lower if algos elect to squeeze the shorts out at that price point. If there is no algorithmic trading participation in the counter-fashion, expect 4221 to be the low side profit target for shorts.
Again, there is virtually no gap from the settlement yesterday so no “gap rules” to speak of here this morning.
Traders of $SPY ETF options who took the trade yesterday at the 423 area we had talked about, should hold into and past the FOMC. If the Feds make no mention of tapering, we could move higher nicely and make new highs. If you have not traded the SPY options yet, wait for that pullback again into the 423 area to position weekly expiration into next week and using 427 as a strike.
Key Levels to factor for the intraday price movement.
