Watch For Key Resistance To Clear And Hold Before Wednesday’s Fed Announcement

05/03/2022

2 minutes read

2022.05.03 08:56

This Wednesday, the Fed will announce an interest rate increase. So far, expectations are for + 0.5%. While some believe this is too high, as the market is struggling, others believe the Fed needs to be more aggressive and push rates up by 0.75%.

Watch For Key Resistance To Clear And Hold Before Wednesday’s Fed Announcement QQQ-IWM Daily Charts

One reason for a smaller 0.25% increase would be to offset weak U.S production as companies look to hire more labor, but are still dealing with supply issues and meeting consumer demand.

On the other hand, the Fed has growing worries that if inflation is not dealt with quickly, predictions will show inflation holding over 3% through the next 10 years.

The Fed’s standpoint of transitory inflation is not playing out very well. Therefore, a 0.75% increase doesn’t seem so bad if it gets the U.S. back on track for long-term economic stability.

Moreover, this puts the Fed in a tough place which is why they will most likely go for the safety of the middle ground with a half-percent increase.

With that said, when it comes to short-term market analysis, two of the major indices including the Russell 2000 (IWM) and the NASDAQ 100 (QQQ) are showing similar chart patterns.

In the above chart, the QQQ rallied over resistance from 317 to 318. Two lows dating back to February and March make this a key level to clear and hold.

The same goes for IWM, however, the small-cap index will need to clear its resistance on Tuesday if it is going to keep pace with the tech-heavy index.

Therefore, if these key areas clear and hold, it’s worth keeping an eye out for a short rally even if overhead resistance is great.

It should also be noted that our momentum indicator is holding over the lower band in both charts (red dotted line). If momentum continues to hold this area, it will increase the chances of a rally.