Federal Reserve Announcement Today

June 15, 2016
By Vlad Karpel

Stocks were under water for a second consecutive day and for a fourth consecutive trading session Tuesday. After losing 17.1 points Monday, the S&P 500 is down another 9.79 points to 2069.27 heading into midday.

Treasury bonds remained bid, however, ahead of the Federal Reserve’s rate announcement today. The yield on the benchmark ten-year has dropped below 1.6% for the first time since February.

Crude oil is off 50c to $48.40 and gold gained to $2 to $1289.

On Wall Street, eight of ten market sectors are lower. Financials (XLF), Basic Materials (XLB), and Energy (XLE) are the biggest losers. Telecomm (IYZ) and Utilities (XLU) are seeing modest gains.

CBOE Volatility Index (VIX) is up .31 to 21.28 and moving to its best levels in months. Trading in the options market is picking up as well. Roughly 4.2M calls and 4.4M puts traded through the first two hours Tuesday. Projected volume for the day is 19.5M and 35% above the one-month daily average.

July 206 puts on the SPDR 500 Trust (SPY) are the most actives with more than 82K contracts traded. SPY Jul 209 puts, VIX Jun 30 calls, and SPY 205 puts are busy as well. In fact, the twelve most actives Tuesday are either VIX or SPY June or July contracts.

Clearly, market angst is on the rise after several months of rather quiet action. As evidence, VIX has moved out of its 13 – 17 three-month range and made a decisive move to the upside. While Wednesday’s FOMC rate announcement is possibly one reason for the increased anxiety, the prospect of a “Brexit” is another.

These broader macroeconomic concerns are also being reflected in falling yields. While the ten-year Treasury yield is testing its February 2016 lows, Germany’s bund yields turned negative for the first time ever and the yield on the UK gilt has dropped to 1.13% from 1.43% at the end of May.

The ongoing decline in global bond yields is not a bullish trend for the financial sector and the SPDR Financial Sector Fund (XLF) is under pressure. The chart below shows the ETF, which holds all of the banking names from the S&P 500, testing a key level along its 50-day moving average and its mid-May lows.

See Tradespoon’s Stock Forecast on SPDR Financial Select Sector Fund (XLF)


Tradespoon’s Stock Forecast on SPDR Financial Select Sector Fund (XLF)

The performance of the financials through today’s FOMC announcement and the June 23rd Brexit vote will have important implications for the broader market. For XLF, watch the 50-day moving average and $22.50 per share level to the downside. $23 and $23.5 are areas of resistance. The next areas of short-term support for the S&P 500 are at 2064, 2050, and 2044. Resistance likely at 2070, 2085, and 2100.

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