According to the CMEGroup FedWatch tool, the odds of the Feds raising interest rates to a target rate of 1.25 to 1.50 is 87.6%. However, a more important question is what happens next? The current FOMC chairwoman, Janet Yellen, is on the way out and a new chair will be appointed. Will the new Chair follow in the footsteps of Janet Yellen or take a more aggressive approach? These are questions that investors are asking as we go into the holidays. Perhaps the FOMC Economic Projections will provide the clues that investors are looking for.
Currently, the emini Nasdaq remains strong after a retracement to around 6231.25. However, as the weekly chart shows, the Stochastics is still overbought on the weekly chart, going into the FOMC releases. While the rate increase may be factored into the market already, the Economic Projections could send the market spiraling down or provide strength for it to continue up.
The emini Dow Jones provides a different picture because the market formed a doji last week. Typically, these dojis are ominous because they indicate the top of the market or indecision. In this case, the doji is likely to indicate indecision because investors are looking closely at the Economic Projections for clues going into 2018. However, if after the release, price does move down and close below last week's low of 24083, then a move down to 22997 or 22531 is feasible.
Additionally, on the emini S&P 500, the weekly chart looks very similar to what we see on the emini Dow Jones, with a doji indicating either a topping formation or indecision. Again, although a rate increase is more than likely priced into the market at this point, the clues presented by the Economic Projections could send the market spiraling down to and closing below the low at 2620 or fuel a move higher. A close below 2620 on the emini S&P 500, could send the market down to 2540 or even 2493.
Of course, the Feds could also surprise investors by opting not to raise interest rates and simply decide to wait for signs that inflation is picking up. With the FOMC release, anything is possible.