Focus on these three levels this morning – 4213 (the overnight high), 4196.50 (the low of our recent four day balance area) and 4183 (the overnight low which also clusters with the WEM low of 4189 and the 21-day line at 2199. All of these numbers relate to the 24-Hour S&P 500 Index futures but you can run similar lines on the SPY or SPX cash index.

The FOMC can change the market’s tone, and sometimes that is exactly what they intend. But we got the usual word salad yesterday, and the initial reaction to the announcement was mixed. Prices initially recovered 100% of what they lost, but then pulled back into the close. Then when it came to Globex, we found the markets not only revisiting the lows but putting in marginal new lows, before recovering slightly into the NYSE open here in a few minutes. Today will give us the true clues to our near-term future.

It is important to note that the intermediate trend has not yet been violated. While the day was rocky and the range was wide, it can only be viewed as negative in the context of the narrow ranges of late. Compared to the usual correction, the price action has not been particularly negative as yet.

While overnight inventory is 100% net short, we are still trading within yesterday’s range so the early trade is a “maybe.”  We are close to the overnight halfback – so maybe the overnight traders took their profits already and that further skews the early trade.

The key takeaway from yesterday, which held the 21- day EMA on both the S&P 500 and NASDAQ 100, is that prices found acceptance below the low of the recent four-day balance, and overnight activity went further below that. Early trade could be governed by persistent overhead supply from that balance (especially the marginal new high longs I discussed yesterday). All of these participants may want to liquidate – but weak hands are out of the way for now with yesterday’s temporary plunge.

Mark the overnight high as weak as it went right to settlement and reversed. Should we see strength, assume moving up and through this level as a potential buy and then monitor for continuation.

Overnight activity tested the TPO VPOC from June 3rd. This would be the target with any further weakness. Below than, let’s talk again Monday as you should be shorting or in cash.

A.F. Thornton