SPY June 17 2013

SPY June 17, 2013 Daily Chart

The market picked up strength overnight and opened well above the Friday close. It then ran higher, but stalled then below 1640 (futures) after briefly piercing it. A late afternoon article, apparently from the Financial Times, didn't say anything new, but sparked jitters about what Fed Chairman Bernanke might say at the conclusion of the Fed meeting on Wednesday. This sparked a furious sell-off of over 10 points, roughly half of which was recovered by the close.

The long-legged Doji that summarizes the day's action masks the intraday volatility.

E-mini futures June 17, 2013 5-minute chart

It was an indecisive day all around, which you would expect right before a Fed meeting. A lot of traders will wait until later in the week to trade, after Bernanke says whatever he has to say, which invariably will be what he has been saying all along. If he spoons out enough soothing platitudes (unlike last time), the market could surge higher, at least temporarily.

The causes of today's strength were related to optimism about what Bernanke will say, and also strength in the Nikkei 225 that corresponded with some weakness in the Yen. The tempo of the day's advance, though, was weaker than the usual furious rallies we've grown accustomed to this year. It stalled out around 1638 before the big late-day sell-off.

The late buying was probably part technical bounce and part anticipation of the "Tuesday effect" that has sent the market higher on almost all Tuesdays this year. Reading too much into it is probably a mistake.

The SPY did break out of its downtrend channel, though it did so enigmatically in the form of an indecisive long-legged Doji. SPY was running out of room to prevaricate much longer, so we don't read too much into that, either. That it did stay in the middle of the long-term uptrend channel is of much greater importance.

Since we did not get a close above 1640, we retain a Bearish edge, but it has shifted more toward neutral. A short-term but muted rally before Bernanke would not be a surprise at all, especially if the Nikkei continues its strength, but weakness is likely as his announcement nears. So, overall, we are not looking for dramatic change over the next couple of days. As for the Bernanke effect, it depends on how the market reacts to what he says, which is impossible to predict.