Volatility Slows Ahead of Bernanke
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Richard Cox
Volatility Slows Ahead of Bernanke

Markets are mostly treading water as traders await the results of this week’s FOMC meeting.  This is keeping wide sections of the investment community on the sidelines as there are still major questions about the speed with which the Federal Reserve will choose to cut back on its monthly purchases of Treasuries and mortgage backed secuties.  This third round of quantitative easing is currently valued at $85 billion each month (for the combined asset purchases), so any planned reductions for this figure will be bearish for US stocks, and bullish for the US Dollar.

The S&P 500 has fallen 1% since Ben Bernanke last suggested (on May 21st) that the Fed should start trimming back on its monetary stimulus programs if economic data shows evidence of a stable recovery.  These comments initially spooked markets but since then some of the selling pressure has subsided.  This cautious optimism has been fueled mostly by the fact that the unemployment rate is still well above the Fed’s target rate of 6.5% (coming in at 7.6% last month).  So, at this stage, there looks to be a growing majority in the market that expects the Fed to hold off until the end of the year in making changes to its QE programs.

So far this week, trading volatility has been muted but it is important for traders to prepare for this to change as the Fed’s statement is released on Wednesday at 2:30 pm EST.  If there is no change in the Fed’s asset purchase programs, we are likely to see the S&P 500 rally back to resistance levels at 1685.

Fedex Beats Estimates

In stock specific news, Fedex (FDX) is seeing moderate rallies back to the $100 level, as the latest corporate earnings report for the world’s largest cargo freight airliner showed that fourth quarter profits surpasses analyst estimates.  These improvements were based largely on gains in freight shipments and a strong performance in its ground delivery units.  Typically, earnings strength at Fedex is used as a bellwether for the broader economy as Fedex makes a wide variety of product shipment types to an international consumer base.

Chart Perspective  

Fedex (FDX):  


The long term price perspective for FDX is holding solidly bullish, as the stock continues to trade within its ascending triangle after making a strong bounce off of support at 92.10.  Bias remains bullish as long as this support level holds, so any dips into the 95-96 region should be viewed as a new buying opportunity.  First major resistance is now seen at 109.80, and a clear break here will target the 2006 highs at 116.80.

Sprint (S):  


Sprint is showing positive momentum after gapping higher above key short term resistance at 6.35.  From a long term perspective, prices are still trading well below their historical averages (when viewing the stock on the monthly charts), so there is scope for significant for those willing to take on broad timeframes for new positions.  Short term, the bias remains bullish as long as support at 6.35 holds.

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