Light volume and erratic movement is expected to dominate the market today, one day ahead of the FOMC meeting. Investors are not likely to put on big positions, and traders are likely to move the market in both directions to generate activity.

Today is likely to be a counter-trend day as yesterday’s sell-off in the equities may have been overdone. The stock market has been breaking on changing market sentiment. Fresh buying seems to have dried up at the high levels. This may be because traders who bought the bottom or near the bottom are more willing to take a little off the top rather than add to the winning positions.

Equities have had a great rally this quarter, but the percentage gains they have achieved are probably too hard to maintain. The break we have been seeing this week is most likely a sign of lower markets to come. Short-term this market is slightly oversold which means today is likely to be a counter-trend day. The September E-mini S&P 500 chart indicates a strong possibility of a rally back to 905.00 over the next two days before fresh sellers step up.

September Treasury Bonds and Treasury Notes are likely to feel downside pressure as the Treasury begins another debt auction. $40 billion in 2-Year Notes is expected to hit the market today. Look for weakness as the market adjusts for the new supply hitting the market. Toward the end of the day, traders will be watching to see how the auction was received by traders. If everything goes smoothly, then Treasuries are likely to remain flat. If the auction is not received very well and interest rates rise substantially, then Treasuries are likely to feel more pressure.

The U.S. Dollar is trading weaker following a strong move yesterday. This is a technical reaction to yesterday’s sell-off. This has been the pattern lately, but overall, the trend in the Dollar has been up. The overnight action is taking place on light volume and the technical patterns are indicating corrective moves rather than changes in trend. There is a possibility of choppy, two-sided trading.

The weaker Dollar is leading to stronger metals this morning. All four metals markets have overshot their downside objectives. Today, prices may adjust to the short-term oversold conditions by retracing to the upside. Without inflation to guide them higher, August Gold and September Silver are expected to have limited upside rallies. September Copper and October Platinum should have a counter-trend bounce up today. A report that the world’s economy may suffer a greater than estimated recession is weighing on demand for industrial metals.

Grain markets have hit oversold levels. Ideal growing conditions and a slowdown in demand because of the stronger Dollar have contributed to a substantial break this month. Today may be a counter-trend day as traders begin to take profits.

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