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Despite Fed Sell-Off, Stocks Still Look Bullish

Technical analyst Dave Chojnacki recaps Wednesday’s bearish market action, which saw a much-needed pullback on the Fed’s rate hike, and updates the technical levels that traders should focus on for the major indexes.

Fed Hike Spurs Sell-Off

The market opened mixed yesterday morning as Economic numbers were also mixed to weak. The major indices traded in a very narrow range through the morning hours. Volume also was slow, with investors waiting for the FOMC announcement at 2PM before making any major moves.

As expected, the FOMC announced a .25 point increase in rates. After the usual gyrations after an announcement, equities began to sell-off, and continued falling into the close. By the final bell, the major averages were down moderately. At the close, the DJIA was down 0.69%, the SPX fell 0.81%, and the NDX dropped 0.30%.

Technicals Are Still Bullish, But A Pullback Would Be Nice

Breadth was decidedly negative, 4 to 1, on above average volume. ROC(10)’s declined, however, all three major averages remained in positive territory.

RSI’s moved lower, pushing the DJIA down to 78.5, from an extremely high level. The SPX finished at 67.5, just below the overbought level of 70. All three major indices remain with their MACD above signal. The ARMS index ended the day at 1.32, fairly bearish.

The rally that began in early November has proceeded without any major sell-off. Several of the major indices clearly are overbought, and a pullback was inevitable. Yesterday’s FOMC rate hike was the catalyst to remove some of this froth, but whether this lasts longer is yet to be seen. Technicals remain strong and a small pullback would be healthy for the Market.

The DJIA made a new intra-day high of 19966 before selling off. The SPX got within 1 point of its prior session’s intraday high of 2277. The SPX broke near term support of 2262, but closed above the next support of 2250. The NDX closed at 4921, above the critical support of 4909.

The VIX added 3.8% to finish at 13.21. Near term support for the NDX is at 4909 and 4900. Near term resistance is at 4935 and 4960. Near term support for the SPX is at 2250 and 2241. Near term resistance is at 2262 and 2277.

Thursday Preview

Europe is up moderately in early trade this morning, while U.S. futures are slightly higher in the pre-market. It’ll be very interesting to see how the markets digest the rate hike over the next few sessions, with a lot of volatility in the currency, commodity, and bond markets.

We’ll see a slew of economic data points today, with Initial/Continuing Claims, the Philly Fed, and Empire Manufacturing all at 8:30am. Then we’ll see NAHB Housing Market Index numbers at 9:00am, followed by Natural Gas Inventories at 10:30am.

The largest SPX-linked ETF, the SPDR S&P 500 ETF Trust (NYSE:SPY), was mostly flat in premarket trading Thursday.

Disclaimer: The content of this article is excerpted from a daily newsletter from Street One Financial. While ETF Daily News may edit the contents and add a relevant title to the piece, the author, David Chojnacki, does not endorse or recommend any issuer or security mentioned herein.

About the Author: Dave Chojnacki
Dave Chojnacki is the Chief Market Technician at Street One Financial. He provides technical support for the Street One team and also develops individual analysis for Clients as requested.

Dave is a major contributor to the ‘ETF Daily’, a morning newsletter providing clients a daily look at market technicals of the major indices and selected ETF’s. Market trends, support and resistance levels are provided in the daily letter. The Technical portion of the daily can also be found on Seeking Alpha. Mr. Chojnacki has been quoted in a number of industry publications including the Reuters, ETF Trends, Minyanville, Yahoo Financial and Investors.Com.

In addition, Dave assists with desk trading when necessary. He possesses a Series 7 and 63.

Prior to joining Street One, Dave designed and developed I/T Systems for the Insurance and Financial Industries.

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