Interest rates on the rise ahead of announcement

Good day! The most highly anticipated economic report for the week has been Thursday's rate announcement by the European Central Bank. It is expected to raise its benchmark interest rate from 1% to 1.25% to combat rising inflation. The U.S. Federal Reserve could easily take this cue to begin raising rates before the end of the year as well.

Gold and silver were both up strongly on Wednesday and so were interest rates. The 10-year Treasury yields rose from 3.483% on Tuesday to 3.549% Wednesday afternoon. This is its highest level in a month. Meanwhile, gold made yet another record high by hitting $1,463.70 an ounce in New York and settled at $1,45.50. Silver settled at $39.387 after hitting another 31-year high of $39.785. The next FOMC meeting will be held April 26-27th.

Oil was also making headlines on Wednesday. Crude oil is up 19.1% year-to-date and hit a new high for the year in morning trade. After striking intraday highs of $109.14, it settled at $108.83 a barrel.

Dow Jones Industrial Average (Figure 1)

Wednesday's session got off to a strong start thanks to overseas strength, which drove the index futures higher. As I mentioned in yesterday's column, the extreme pace of the buying would make it difficult for the market to establish further intraday gains. Slightly higher highs were possible, however, as we saw on Tuesday. This would shift the momentum to allow for a larger price correction, but without it we were looking at a choppier, trading range environment.

As it happened, the indices did manage slightly higher highs. They took place in the S&P 500 and Dow Jones Ind. Average futures ahead of the opening bell and soon after it in the Nasdaq-100. The premarket rally in the S&Ps and Dow equaled the rally on Tuesday morning on the 15 minute time frame and left the indices extended by the time regular trade began on Wednesday. This meant that the market was favoring a correction intraday on Wednesday. The slightly higher highs allowed for a greater price correction than we would have likely seen without that trap.

S&P 500 (Figure 2)

The Dow was the strongest of the three major indices, while the Nasdaq was the weakest. Following the opening bell, both the S&Ps and Nasdaq futures hugged their 5 minute 20 period moving averages from approximately 10:15 a.m. ET into 11:00 a.m. ET. This created an AvalancheTM short setup on the 5 minute time frame, which resulted in a strong move to new intraday lows in the second half of the morning. In the meantime, slightly higher intraday highs in the Dow into 11:00 a.m. ET created a 2T reversal in that index off morning highs and also led to a correction throughout the latter half of the morning.

The pace of the selloff slowed rather quickly and within 15 minutes the indices were striking support, but since the initial drop out of the AvalancheTM was rapid, a series of slightly lower lows followed until noon. By that point the Nasdaq-100 was retesting Tuesday's premarket lows and the Dow futures were striking their 15 minute 200 period moving average. The slowing momentum created a Momentum ReversalTM in the S&P 500 and Dow and the support levels, combined with the noon reversal period, all helped the indices turn higher once again into the close. Nevertheless, the pace remained slow compared to the earlier selloff and the index futures fell quickly off highs once again in afterhours trade.

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