Good morning! Tuesday was a pretty typical Fed Day. Beginning with a slight upside gap into the open, the volume dropped off soon afterwards as the indices fell into a range near highs. The buying continued on a breakout into 10:00 ET when volume picked up and the indices rallied back into highs from the prior two trading days.

After coming into the price resistance, the market began to gradually turn over with the NASDAQ leading the way. It formed a 5 minute Avalanche into 12:00 ET by basing along the 20 sma on light volume before breaking that support level. The SP500 and Dow Jones Ind. Ave. both declined rapidly at that point, coming back into opening price levels, along with 5 minute 200 sma and 15 minute 20 sma support in the SP500. 
 

Despite the early afternoon selling, the volume remained thin as many folks just sat aside and waited for the 2:15 ET Fed announcement. The selling had resumed out of the 13:00 ET reversal period coming off the 5 minute 20 sma resistance, but it was very gradual and lacked conviction. This third wave of selling on the 5 minute charts was followed by a trading channel break just before 2:15 ET. The early afternoon selling would prove to be a precursor of what was to come once the Fed news came out.

The initial reaction to the Fed was a rapid decline as rates were raised to 3.75% with plans to continue the increases until at least January. There had been some talk of rates remaining the same due in part to Hurricane Katrina. Fed. Gov. Mark Olsen was one to share this bias.  As a result, the market reaction was much greater than we've seen following the last couple of Fed. announcements. More info on the Fed debate will be released on Oct. 11, while Greenspan speaks at the annual meeting of the National Assoc. of Business Economics in Chicago on Sept. 27th.

After the initial wave of post-Fed selling, the market corrected back into the breakdown zone. From that point it went on to the third reaction, back in the initial direction. This was the steepest move, taking indices into new lows since the pivot highs from the 13th. As the 15:00 ET reversal period hit, the market saw some exhaustion as the NASDAQ bungee jumped into the prior day's lows. Volume spiked and the market rounded off at lows, pulling up a bit into the close.

This action is in line with a triangle formation on the daily and weekly charts since both the upside and downside pace on the moves within the range are pretty comparable. We should start to see it begin to favor one end over the other. Overall the risk is likely to increase on swingtrades over the next couple of weeks if the triangle continues to form because the range will contract, typically breaking out only after the third test of highs or lows within that range. Volume also tends to decline in the process.

Updates: Swingtrades: VRTX from last Monday has support under the 20 day sma. Position trades: HSP and CHRS long have support at the lows of the weekly bases. CHRS stopped out some folks on Tuesday, but is holding the 20 week sma support. I am looking at acquiring NTRS as a position trade buy on upside breakouts from the current range on the weekly chart. HCA was also added to the position trade short watch list this week and has resistance at its 20 week sma. 

Economic Reports and Events
Sep. 21: -
Sep. 22: Initial Claims 09/17 (8:30 am), Leading Indicators for Aug. 810:00 am)
Sep. 23: -
Sep. 26: Existing Home Sales for Aug. (10:00 am)
Sep. 27: Consumer Confidence for Sep.. (10:00 am), New Home Sales for Aug. (10:00 am)

Earnings Announcements of Interest
Only stocks with an average daily volume of 500K+ are listed. List may not be complete so be sure to always check your stocks' earnings dates before holding a position overnight. (A) = Earnings after the close, (B) = Earnings before the open, (?) = Earnings time not specified at the time of this writing
Sep. 21: BBBY (?), BMET (B), KMX (B), COGN (?), FDX (?)
Sep. 22: COMS (A), FINL (4:15 pm ET), GIS (B), KBH (B), ORCL (A), PALM (A), RAD (?), TIBX (A)
Sep. 23: -
Sep. 26: JBL (A), WAG (?)
Sep. 27: -

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.