Volume was very light on Monday as the market geared up for Tuesday's highly anticipated FOMC meeting. The market was stronger than I was expecting heading into the weekend, but the buying did not last long. Some choppy action out of the open on a small upside gap was followed by a strong move higher out of the 9:45 am ET reversal period in the Dow Jones Industrial Average ($DJI) and S&P 500 ($SPX). The Nasdaq Composite ($COMPX) didn't quite play along. It popped into 10:00 am ET on pending home sales data, which was a strong accelerant for the buyers. The data came in with a second straight month of increases. The Nasdaq then chopped around into 10:30 am ET even though the Dow and S&Ps kept climbing. Upside momentum shifted to the Nasdaq, while the slowdown in buying in the Dow and S&Ps created a reversal pattern off highs into the 11:00 am ET pattern.



The market did a decent job of holding the zone of the morning highs throughout the rest of the day. There were some slightly higher highs in the Dow and S&Ps, but this breakout attempt from the mid-day range merely served as a trap. Volume failed to confirm the attempt and a 2-minute Avalanche pattern formed after the steep retracement off the afternoon highs. The market then broke lower into 14:00 pm ET.

The Nasdaq fell all the way back into the morning congestion before it found support at the 14:00 ET reversal period. The Dow and S&Ps found some closer support at the 12:00 ET lows. The momentum rolled over somewhat at that point, but not enough to take the indices out of the day's trading range. The market pulled back into the middle of the range, but failed to make any significant move ahead of the closing bell.



The Dow posted gains of 101.5 points on Monday, up 0.7%, and closed at 13,727.0. The S&P 500 rose 11.30 points, or 0.8%, and ended the session at 1,515.96. The Nasdaq Composite, which was the weakest of the three, climbed 12.79 points, or 0.5%. It finished the session at 2,718.95. Top Dow gainers included Caterpillar Inc. (CAT) (+3.2%), J.P. Morgan Chase (JPM) (+2.9%), McDonald's Corp. (MCD) (+2.9%). AT&T (T), on the other hand, lagged considerably. It fell 1.5%. In other markets, crude oil also posted losses, dropping 42 cents to $87.86/barrel. Meanwhile, gold futures climbed $13.3 to close at $813.5/ounce.



With the Fed looming, I am expecting some corrective action off the recent highs. The market typically pulls higher the morning of the Fed and then volume dies off over noon. The least risky action on a Fed day is usually in the first 90 minutes of the session. There can be some decent moves mid-day, but it is more common to see very little activity just prior to the announcement. When the news hits we then tend to see three strong moves in reaction to the news. First the trio appears on a 1 minute time frame and then repeats on a larger one, typically the 5-minute time frame. It is very dangerous to trade in the immediate aftermath of the Fed announcement due to the rapid data stream. Proceed with caution at that time! A rate cut is anticipated, but there is great deal of debate as to whether it will be by a quarter or a half percent.

Toni Hansen is President and Co-founder of the Bastiat Group, Inc., and runs the popular Trading From Main Street. She can be reached at Toni@tradingfrommainstreet.com.