Jeff Clark's Market Minute

The Action to Watch on 5/3

Dear Reader,

Here’s what to look for in the action today…

General Trends

On Tuesday, the stock market gave us a carbon copy of Monday’s action. The S&P 500 was stuck in a tight trading range, with a slight upside bias.

Today we have the Federal Open Market Committee (FOMC) announcement at about 2:00 p.m. ET. Nobody expects the FOMC to do anything about interest rates today. But traders will be looking for confirmation, or not, of a potential June rate hike.

Here at the Market Minute, I show you how the major markets are setting up for the day. It’s how I’m preparing to trade my own money.

With that in mind, let’s look at stocks…

Stocks

The S&P 500 has resistance at 2400. Support is at 2375-ish.

For the past five trading sessions, the S&P has stayed within a tight, 12-point trading range. Energy is building for a break one way or the other. I still favor an upside breakout and an eventual run towards 2411 or so for the S&P. But, really, it could go either way at this point.

In order for stocks to break to the upside, I think the oil sector needs to start rallying.

Oil stocks have been declining for the past five months. The sector is oversold. And the charts of several major oil stocks look like they’re setting up for a reversal. If the oil sector can attract some buying interest, then it will likely give a boost to the broad stock market.

As I said yesterday… the path of least resistance for the moment is higher. But I suspect any gains this week will be given up later in the month.

Gold and Gold Stocks

The gold sector is likely to be volatile after the FOMC announcement this afternoon. Most of the stocks in this sector don’t have much of a pattern on the daily charts. The sector remains stuck in a choppy range, trying to hammer out a bottom.

Volatility

The Volatility Index (VIX) actually rose yesterday along with the broad stock market. That’s unusual. A rising VIX usually happens as stocks fall.

My guess is that traders bought options in anticipation of volatility after today’s FOMC announcement.

For now, the VIX – at 10.59 – remains comfortably above its lower Bollinger Band at 8.99. So there’s no threat of a broad stock market sell signal just yet. 

GDX has been falling this week. But, the MACD momentum indicator has been rising. This “positive divergence” tells us the momentum behind the decline is reversing. This is often an early warning sign of an impending bounce.

The chart looked similar back in early March – just before GDX rallied 5% in only two days. A similar bounce this time around could push GDX back up towards the $23 level.

For the moment, I’m only looking for a short-term bounce in the gold sector. The daily chart of GDX doesn’t look as constructive. A few days of back and forth action would be helpful.

I’ll update regular readers on these trends throughout the day on Jeff Clark Direct.

Best regards and good trading,

Jeff Clark

P.S. I love to hear your feedback. Send your comments and questions to me right here.

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