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Stocks Rebound on Outside Reversal Day Following Fed Minutes

David Becker
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Stocks Rebound on Outside Reversal Day Following Fed Minutes

Wednesday’s snap back rebound on the major U.S. indices was driven by the dovish meeting minutes that made it clear that the Federal Reserve would likely keep interest rates lower than many had previously thought. Eurodollar futures contracts had prior to the release of the minutes had priced in the likelihood of an increase in interest rates in mid-2015, which has now been pushed back to the latter part of next year.

The FOMC meeting minutes show that the Fed is gravely concerned about the global economic backdrop and this will likely keep them on the sidelines longer than most had anticipated. The Fed discussed the economies in Europe, Japan and China, which are feeling the effects of low inflation and sluggish growth. The Fed believes that if it started the process of rate normalization, it would hinder global growth.

Short-term interest rates, which increased, following last Friday’s employment report, quickly reversed on Wednesday. The major averages soared, reversing the slide seen on the prior Tuesday. The S&P 500 index soared 1.75%, while the Nasdaq surged nearly 2%.

The S&P 500 index generated an outside reversal day which could continue to generate a strong short squeeze in the large cap index. An outside reversal day occurs when an index or a stock makes a new low, that is lower than the prior days low, and then closes above the prior days high. The next level of short term resistance for the S&P 500 index is the 50-day moving average near 1973. Support is seen near Wednesday’s low at 1925. The relative strength index (RSI) moved higher with price action reflecting accelerating positive momentum while printing a reading of 48, which is in the middle of the neutral range and shows that the index has further to climb.

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Iron FX 1.11156/1.11128 2.8
XM Markets 1.09948/1.09928 2
FxPro 1.10184/1.10171 1.3
FXCM 1.13943/1.13912 3.1