Investors seemed content to play it close to the vest ahead of today's Fed meeting, as evidenced by the tight-ranged intraday action that formed an inside bar on the daily charts of broad market indices. The majority of the day's gains arrived in the first half hour of trading, as the rest of the day was very much a chop fest. Markets did attempt to rally a few times intraday, but each run at the day's high lacked momentum in price and in the internals. The S&P MidCap 400 and small-cap Russell 2000 closed up 1.4% and 1.3% respectively, followed by the S&P 500 at 1.1%, and the Nasdaq Composite at 1.0%. The Dow Jones Industrials was a minor laggard, gaining just 0.7%.

Not surprisingly, total volume eased off on both exchanges. NYSE volume dropped 7%, while Nasdaq volume came in 1% lighter. There isn't much to take away from the price and volume action as of late, as we continue to chop around on lower volume.



The hourly charts of the major averages above clearly show the bottoming out action over the past two weeks. The obvious buy points are above the horizontal lines, over the two-day high. Since these levels are pretty obvious, we'd expect a fair amount of head fakes above and below the current range highs, especially if the breakouts occur at or near today's 2:15 FOMC announcement. Fed days are challenging, as the main stock market indexes often ignore key technical support and resistance levels that would otherwise be significant.

After a 10-point selloff over the past six sessions, TLT finally manged to catch a bid yesterday:



Today's reversal action may have been a combination of short covering and investors seeking safe ground ahead of today's Fed meeting. We expect any bounce to be short-lived, as there is quite a bit of resistance waiting at the 111.00-113.00 level. As we have mentioned in past reports, further weakness in TLT should bode well for the stock market, as money flows out of safety and in to risk. Whether or not this relationship will prove itself true remains to be seen; however, TLT is certainly worth monitoring on a daily basis along with the financials to gather valuable insight on future market direction.

Since the failed breakout attempt above the December swing highs in early January, broad market indices have sold off as much as 10% to 15% (from the January 6 high). Investor confidence, which was riding high off the November bottom looks to have lost some steam over the past few weeks. The recent setback in the market may have been the washout that is necessary to kickstart a strong rally. A big volume breakout to the upside on a Fed day would probably catch the majority of investors off guard here. We often quote the motto "trade what you see, not what you think", so this is not a prediction, but more of a "be prepared for anything" reminder.

Open ETF positions:

Long - DGP, GDX
Short - (none)

Deron Wagner is the Founder and Head Trader of both Morpheus Capital LP, a U.S. hedge fund, and Morpheus Trading Group, a trader education firm launched in 2001 that provides daily technical analysis of the leading ETFs and stocks. For a free trial to the full version of The Wagner Daily or to learn about Wagner's other services, visit MorpheusTrading.com or send an e-mail to deron@morpheustrading.com.