It’s been a period of pause and reflection for equity markets, following the picture perfect price action of August, as the up elevator finally reached the next level, rolling gently over into the current phase of price congestion. For the ES Emini, the last few days have delivered yet further confirmation that the bullish trend is not yet over, and for those waiting for the big short, further patience is required. Today of course sees the conclusion of the FED meeting, and as always the focus will be on the accompanying statement, rather than the rate decision itself. The devil, as always is in the detail.

Starting with the technical picture, in general terms, volumes have been rising as we move from the summer period into the final quarter of 2014, and the key day to date was the 3rd September. This set the upper level of price resistance on the daily chart, with the shooting star candle on average volume suggesting this was not a sign of any major reversal, but simply short term weakness. This was duly validated the following day with a second shooting star candle coupled with the pivot high to the top of the candle and defining the resistance in the 2005 area.

Following the minor move lower, the market then delivered two pivot lows, helping to define the support region in the 1975 region, with the second of these appearing on Monday, as the market bounced off the accumulation zone in the 1960 to 1965 area, as shown with the blue dotted line. Monday’s price action was also significant for another reason, as the narrow spread price action of the day, coupled with the wick to the lower body and high volume at 1742k contracts on the day, was a strong sign of buying, duly confirmed in yesterday’s trading session, with the ES climbing strongly and closing with a wide spread up candle coupled with high volume.

Another excellent signal that the market is preparing to rally once again. Overnight on Globex the December contract has been trading in a narrow range, ahead of the FOMC statement later, and provided there are no shocks we should see the psychological 2000 level come under attack once again, with any move beyond the 2005 level, then setting the tone for the next few weeks with the well developed price action of the last few weeks providing the springboard, for yet another leg up in the bullish trend.

This picture is also confirmed by the VIX, which duly sold off sharply yesterday, moving from a high of 14.53, to close at 12.73 with the wide spread down candle engulfing that of Monday, and sending a clear signal of bearish intent on the daily chart. The key level for the VIX now awaits below in the 12.10 area, and any move through here, is likely to see a test of the 11.25 region of late August, with the prospect of a move to single figures once more becoming a real possibility.

Finally an interesting statistic – the S&P 500 has virtually no correlation with strength or weakness in the US dollar. What we can say, is that when the dollar index is bullish, the S&P 500 will rise more strongly than when it is bearish as evidenced with the statistics, which point to a rise of 51% when the dollar is strong and only 39% when it is weak. So something to consider ahead of today’s FOMC meeting, and given the strong technical picture for the dollar, any further dollar strength is could see further gains for the ES amplified as a result.

Anna Coulling is a trader with over 16 years’ experience and founder of AnnaCoulling.com