EXPECT CHOP CHOP AHEAD...

Futures are off this morning on some early profit taking and weakness in Europe. The indices are over-extended and due a multi-day breather before we move higher. We are headed into op-ex tomorrow with some bearish divergence in the index charts so again, we can expect some chop chop ahead. But the good news is that the past 2 days have worked through a number of resistance levels and the way is mostly clear now to challenge the summer highs within the next couple of weeks. Market profits will be difficult to come by for swingers while things settle down, but they will return soon enough.

Other stocks to consider: (longs): ALVR, RIG, ACH (shorts): ATI

CHIEF BEN TO THE RESCUE!

Good morning traders! I won't rehash what you have probably heard a dozen times by now regarding yesterday's Fed action, except to say it was unexpected...and glorious! You gotta think that the guy who wrote the book, that is "books", on macroeconomics and credit crisis (namely, Chief Ben), knows what he's doing with the rates. No one policy can stave off all the economic dangers lurking out there, but it is probably best to err on the side of stimulus than withdrawal at this point. Smallcaps look ready to take over leadership in any new leg up to test the summer highs...but since yesterday's rally in the broader market stopped right at resistance, we may have a bit of chop chop consolidation to wade through first. Worst case scenario would be a gap up and reversal which would signal to the markets a trend change and likely trigger a multi-day profit-taking spree. Still, we should be heading higher soon enough.

Other stocks to consider: (longs): AKS, AVCT, ESRX, X, NUAN (shorts): none

ALL EYES ON THE FED...

Last week closed on a fairly positive note after yet another credit crisis (this time a British bank) sent premarket futures plunging: the bulls smelled blood in the streets and swooped in to pick up cheap shares. The indices managed to close the day slightly in the green, with the S&P and DJIA posting minor breakouts. We should see muted action on Monday, however, as money stays on the sidelines until Tuesday at 2:15 pm, EST, when the Fed makes its highly anticipated announcement. Our prediction: the Fed lowers 25 bps, but then eliminates any wording about being "ready to step in" if inflation is noted...in other words, the Fed takes a doveish stance. The knee-jerk reaction is likely then to be to the downside, but only briefly as confidence in the overall economy returns to the markets and we get a healthy bullish ramp test the recent highs.

The chart above shows the S&P proxy (SPY) ready to breakout of an IH&S pattern, with a healthy OBV confirmation; which is to say, the volume for the right shoulder is higher than that for the left shoulder...which is precisely what we want to see in this pattern. I'd look for a confirmed breakout by the end of the week. But is the lower trendline of the right shoulder is violated on any close, then all bets are off.

We recommend going lightly into Tuesday and managing any open positions with hard stop-losses.