Stocks Volatile after FOMC Minutes

22 / 02 / 2018
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The SP500 index dropped notably on Wednesday’s evening and crashed around 50 points from daily highs after hawkish FOMC minutes. The negative sentiment prevailed on Thursday and the index was trading 0.20% weaker during the London session, hovering slightly below 2,700 USD.

The minutes read: “A majority of participants noted that a stronger outlook for economic growth raised the likelihood that further gradual policy firming would be appropriate” = FOMC voters agreed to add word “further” in front of gradual increases because of the stronger economic outlook. This was taken very strongly by the markets and the US dollar surged, bonds were slammed and stocks bled. Additionally, the market-implied expectations for the number of rate-hikes in 2018 surge to new cycle highs (2.82 hikes).

The 10-year yield soared to new cycle highs and now stands only 5 bps shy of the psychological level of 3.00%. However, dip buyers are ignoring this and are trying to buy yesterday’s decline in stocks.

The rebound from the 200 day moving average stopped at the 61.8% level of the Fibonacci retracement, which is usually a very strong resistance. Volatility might be elevated today, with the first support seen at today’s lows near 2,680 USD and if not held, stocks might decline to the 100 day moving average near 2,660 USD.

On the other hand, the resistance is located around 2,705 USD and if bulls will be stronger, they might push the index toward the 2,720 USD area. In all cases we strongly recommend to have rigorous money and risk management.

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