The stock market remains well bid ahead of the most important event of the week. The chances are that moving forward until tomorrow’s Fed meeting, the market will simply “drift” on the lack of news and developments.
Tomorrow’s focus will not be on the actual statement but on the forward guidance that the Fed delivers. If Jerome Powell suggests that the Fed may taper the QE program sooner rather than later, that is a risk to the market. However, the chances are that the Fed will not do that, but any hawkish signal, even a hint that it may do so in the future, might trigger a taper tantrum.
Also, the market appears to be stretched at these levels. Nevertheless, as long as it remains in a rising channel, the conditions of a bullish trend are in place. More precisely, by forming a series of higher highs and higher lows, the S&P500 index has a hard time dropping.
While inside the channel, traders should focus on buying when the price moves in the lower half and targeting a new higher high. This strategy has worked like a charm so far. Bears, on the other hand, may want to go short but only on the index, breaking the higher lows series. Otherwise, the risk is that the market will quickly bounce to a new high.
