(By Rich Bieglmeier) Day two of the week and, once again, stocks do very little to change the technical state of their charts; although, volume for the S&P and NASDAQ did pick up while the Dow remains on vacation.
iStock can say with great confidence that equities will get more participation from the street and computer programs today. The FOMC announcement will be made at 2:15 pm eastern. The Wall Street Journal believes QE could be coming as soon as this afternoon, and Goldman Sachs say nope, later in 2012 or 2013 at the earliest. Either way, the indexes are likely to kneejerk dart in one direction, only to snap back the other just as quickly.
In our view, what happens depends on what data the central bank is using to make the decision. Minus a cruddy Dallas region report, recent manufacturing reports seem to have stabilized. We will know for sure at 10 am eastern when the ISM manufacturing survey results are made public. Economists expect the reading to move above the expansion/contraction line of 50. The consensus is 50.1, up, barely, from last month's 49.7.
Based on manufacturing news to date, we anticipate an in line outcome; however, we see more risk to the downside than upside.
On Tuesday, consumer confidence took an unexpected turn higher, maybe it's a one off report due to the benefits of the summer sun? While the consumer is putting on a smiley face, they are doing it with their hands firmly on the wallet. All three spending reports on Tuesday showed that people are shopping less. Personal Income and Outlays came in flat on the consumption side. Meanwhile, Goldman Sachs and Redbooks same-store sales numbers recorded recovery lows – not good.
As we stated to start the week, our guess is that QE3 depends on this Friday's Jobs numbers. If Ben makes a move today, then iStock expects a poor jobs report to end the week. On the b-side, no action probably foretells of an inline to better than expected employment announcement.
Today is likely to be volatile, to the extreme. Under herky-jerky conditions, it's next to impossible to pick a side of the market to trade as it is likely to swing both ways; although, as we mentioned yesterday, history says to buy and then sell on the news at 2:14 pm eastern. Traders might consider a leveraged, index ETF as a means to profit should stocks rally into Ben Bernanke's decision.