Fed Speak, OpEx Control Stock Market Action

The most significant move of the day came in the early morning hours, before the opening bell. Indexes were trending higher throughout the night before some digestion of announcements made by Federal Reserve (Fed) speakers. 

St. Louis Fed President James Bullard stated, “a 5 to 7 percent fed funds rate may be needed.” If the Fed decides to raise the target rate to 5 to 7 percent, there would be plenty of more raising of rates ahead to achieve that goal.

As of late, market rallies have happened on the back of anticipation that rates would be slowing down in December. If the Fed continues to raise interest rates, it could deteriorate the market environment. Bullard is a Federal Open Market Committee (FOMC) voter, so his word holds some weight, and the market reacted accordingly. 

Theta decay rules daily session

When the opening bell sounded, there was another opening drive lacking direction.

This has been the theme recently as it is Options Expiration (OpEX) week. The reason for a non-directional open is for the premium to experience Theta decay on both sides of the options chain. Remember, one objective of market makers during an OpEX week is to force as many options contracts to expire worthless as possible. 

During the mid-morning lull, news surfaced that mortgage rates had dropped by the largest amount in over 40 years. This news allowed the market to find its first directional move of the day. This move higher was not sustainable as the rest of the session was spent in a choppy, volatile range. 

What to watch for to end this week

Another Fed speaker, Esther George, mentioned that “a slowdown in the economy and labor market may be needed to reduce inflation.” With that being said, Boston Fed President Susan Collins is slated to talk about the labor market at 8:40 a.m. Eastern tomorrow. Collins’ speech may have the potential to swing the market like the Fed speak did today. 

Heading into the last day of OpEX week, manipulation is expected to occur throughout the session on Friday. A few significant targets are going to be psychological ones. With the S&P 500 futures closing around 3,950, it leaves possible targets on each side. 

On the upside, 4,000 is always in consideration for a pin. If the market shows strength and can find a way to get going, the next level up at 4,050 makes sense. Keep in mind that 4,050 is also the high of the week, so a return of that level is possible in the next few days. 

On the downside, 3,900 is a level that has been pinned before, so  it remains a good target to the downside. If 3,900 breaks, the 15-day simple moving average (SMA) at 3,880 provides another target.

Stock market slips slightly, again

The Nasdaq and the S&P 500 were slightly negative to close the session. The S&P 500 closed down 0.37%, losing 15 points, while the Nasdaq closed down 0.45%, a loss of 51 points. The Dow followed, closing down 0.08%, declining 27 points.