The E-mini S&P 500 formed a "bearish engulfing" at recent resistance levels in response to Friday’s record high settle. Prices fell further overnight and this morning, but recovered, for a time, much of the earlier losses. Respectful of the bearish price action when combining the last two sessions, we are anxious to see whether it is confirmed with subsequent trade today.
The Fed meets today and will offer a statement tomorrow on monetary policy and the state of the economy and financial system. We note with interest that the last time the FOMC met, they offered surprising information about weaker projections for growth and a lower likely path for policy rates. The response from this report was sharply lower Treasury yields at the front end of the curve and a jump in equity prices. The Emini S&P 500 rallied 26 points that day and made a strong advance toward the late February high. The strength in equities was arguably on the back of expectations that the Fed would be supportive by keeping policy rates lower for longer.
As much as the last FOMC report tempered economic growth expectations, it is hard to imagine the Fed would want to ‘surprise’ in the same direction at tomorrow’s meeting. Unless the economic situation has become significantly weaker, a condition not borne out by recent data releases, the Fed would probably want to see a more modest, and possibly opposite direction reaction to the upcoming Statement. This would argue for the resistance found at 2110-2120 to be more resilient.