The Federal Reserve’s next policy meeting is coming up September 18, 2007. Participants in nearly all markets are digesting each piece of economic data and speculating what will trigger the Fed to cut interest rates, and how much. Besides the usual data mining this week, traders in both stock indexes and energy markets will be paying attention to words from the Organization of Petroleum Exporting Countries(OPEC), when they meet Tuesday, September 11, in Vienna.

Stock Indexes

First, let’s look at stock index futures. Friday’s weaker-than-expected August employment report caused the stock market to end the week on a sour note. August nonfarm payrolls fell by 4,000 and previous months were revised downward. Aside from that report and ongoing weakness in housing, other U.S. economic reports have been pretty darn good, and the economy remains moderately healthy overall. Fed policymakers have indicated they will weigh all the current data, but the financial markets are expecting a rate cut next week; some say we'll get a cut of 25 basis points in the Federal funds rate next week, some say 50. And 75 basis points is being priced in by year-end. All I know is it isn’t a done-deal, so this volatile market will likely remain so.

From a technical standpoint, the S&P December futures contract gapped down Friday, closing below the 20-day moving average. That suggests a short-term top may be in, and momentum indicators, the stochastics and relative strength index (RSI), are overbought and also slightly bearish. I see the potential for more room on downside, but all in all, I see a trading range affair unless the market closes above 1500 or below 1400 two days in a row. Participants are trying to figure out where the economy is headed, and what the Fed will do. Keep in mind--a rate cut is not a guarantee so be cautious as you trade. Always use stops and follow your support or resistance. I see good long-term support areas at 1435 and 1395, with resistance at 1482 and 1510. For day traders, if the market falls below 1447, look for 1435-39 as support.

Crude Oil

October NYMEX crude oil futures rallied above $77 last week, but by week’s end, the tide had turned, despite a very bullish inventory report. On Thursday, September 6, the Energy Information Administration reported stockpiles dropped 3.97 million barrels, the eighth decline in nine weeks and almost twice as much as analysts had forecast. If the market can’t hold onto gains in the face of wildly bullish news, be warned—bearish news could really create a meltdown. Prices should retreat as hurricane season winds down, and if the economy stalls, so will demand. So unless we get a big storm or a terrorist threat, I see a near-term top possible.

While OPEC doesn’t yield the power it used to, market participants still react when OPEC talks. There is no increase in production quotas expected out of Tuesday’s meeting, as the extent the subprime credit crunch will weigh on global growth is still playing out. According to a Bloomberg survey taken last week, 23 traders and analysts expect OPEC to leave its target unchanged.

Please feel free to call me at 866-231-7811 or contact me via email at jfriedman@lind-waldock.com if you have questions on this topic or to discuss specific trading strategies for your unique situation in this or other markets.

Good luck and good trading!

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