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The S&P 500 soared higher by 2% on Wednesday, it’s biggest rise since 2013 after the Federal Reserve said the bank would be patient over interest rate rises. This statement moves slightly away from the Federal Reserve’s previous wording which was that interest rates would remain near zero for a considerable time.
The Fed inferred that the first rate increase would take place in 2015 and although the statement is moderately more hawkish, traders took plenty of positives from the meeting based on the bank’s outlook on the US economy.
More specifically, Federal Reserve Head Janet Yellen indicated in a press conference that turmoil in Russia was not a big threat to the US economy. She also said that lower oil prices would be net positive for the US economy and give households a bit more cash to spend.
As a result, most global stock markets rallied and it turned out to be the most positive reaction to an FOMC meeting since 2011.
Meanwhile, the CBOE Volatility Index (VIX) fell back to the 17 level from a previous session high around 23.
Technicals & Outlook
Traders were somewhat cautious going into Wednesday’s session and the S&P 500 started the day well below its pivot after some sharp losses on Tuesday.
Stock markets started to pick up in early morning trade and moved gradually higher as the FOMC meeting got underway. Gains accelerated in the final hour of trading with the S&P 500 moving past 2,000 and closing above its first resistance.
Going forward from here, we see more gains ahead for the S&P 500 over the next few days. Although most technical indicators are bearish we have already had five waves down inside wave i (circle), so the downside from here is limited. However there is another scenario in which the current rally is wave (iv) inside wave i (circle). If so there will be a final move down to new lows before the Santa Claus rally starts. The rally should carry the S&P 500 to 2,060 before the end of December.
Thierry Laduguie is Trading Strategist at www.bettertrader.co.uk
