Well, this is almost it... the last time we'll get a chance to chat before we all learn the Fed's decision regarding a rate hike this month. The decision will be posted on Thursday, at 2:00 pm EST. If Janet Yellen doesn't do it then, barring something of an emergency situation, she won't get another chance to do so again until December. Though traders were effectively betting on the Fed Funds rate NOT being raised this month, interest rates have been drifting higher recently anyway, implying that the bond market knows the rate hike is coming sooner or later. And then today's inflation news came, quelling what already looked like a diminishing chance of higher interest rates anyway. The curious part? Despite the increased likelihood that the country's first rate hike in years was postponed, bond yields rose anyway, suggesting the bond market knows it's only a matter of time. Yet, the stock market - despite strength from bonds - rose as well, as investors love the idea that money and borrowing will remain cheap for just a little while longer. It's undoubtedly the most confusing of all the possible market scenarios heading into a key interest rate decision. While I've kept a fairly firm grip on all these tides (and their changes) and how they relate to the upcoming interest rate decisions, I have to give credit where it's due... John Monroe over at the Elite Opportunity newsletter framed the issue and potential outcomes after tomorrow's decision better than I could. Without giving away too much of Wednesday's EO newsletter, John noted: "I've been saying all along, a rise in rates would be a bullish signal for stocks, while kicking the can down the road may actually end up triggering fundamental cause for concern... However, should the Fed raise rates as soon as tomorrow, even if it were a token rate hike, it would at least signal to Wall Street that maybe our economy is ready to start having the training wheels removed... With that being said, I firmly believe a rate hike tomorrow would actually be good for stocks once the initial knee-jerk reaction is over." Though not voiced in the snippet above, John also thinks a strong post-announcement move - up or down - could ultimately be a setup for a longer-lived and bigger counter-move. To that end, we're still kind of hoping for a sharp post-announcement pullback to new multi-week lows. That would likely be a really healthy capitulation, setting up a much-anticipated Q4 rally. If for some reason we bounce sharply tomorrow, it kind of puts stocks back in no-man's land where it has a tough time being bearish or bullish. The irony is, either interest rate decision (to raise it or leave it alone) could lead to either result for the market - a rally or a plunge. It's not so much the decision as it will be the Fed's and the media's spin on the decision, and then the market's knee-jerk response. We'll be looking for how and where that knee-jerk moves stops. In any case, buckle up. By the way, as much as we've been covering the impending decision from Janet Yellen and how either scenario could affect the market in its current state, the Elite Opportunity newsletter has been passing along some much more detailed and much more actionable commentary. If you've been looking to capitalize on all this crazy volatility rather than simply watch it unfurl, John's got you covered. Here's how to tap into that trading resource, or cut and paste this link: https://www.smallcapnetwork.com/pages/SCNEO/v1/ Economic Reality Check You know, you have to wonder... if the Federal Reserve's voting members had to make a decision last week, would it have been different than the one they'll have to make this week after seeing this week's inflation data, retail sales data, and industrial activity for August? None of it was especially thrilling. On Tuesday we learned last month's retail spending only grew 0.2% overall, and was up only 0.1% not factoring in auto sales. Economists were looking for a little more. And yet, as far as Augusts go, this one was pretty typical. We're still making decent forward progress on all fronts except gasoline sales, and the plunge in crude prices is a statistical anomaly. If anything, the shortcoming for retail sales last month was based on unfair expectations. This morning we also learned a surprising fact about inflation... there's not much of it. The annualized inflation rate now stands at a mere 0.195%, and even taking crude oil (gasoline) out of the equation, the inflation rate stands at a tame 1.8%. The Fed's merely been trying to contain inflation at a pace of less than 2.0%, and so far it's been able to do that without even trying. The fear at this point has to be that even slightly higher interest rates could actually cause deflation. Last but not least, capacity-utilization as well as industrial productivity were down last month. The lull didn't break the broad uptrend in productivity, but we did see an alarming renewal of a downtrend in utilization rates. Though the cause-effect relationship may be a little loose, this data can't be reassuring to the Fed that a rate hike would simply be brushed off. Broadly speaking, this week's economic data steers the Fed away from a rate increase this month. The only thing I think could drive an interest rate increase on Thursday is if Janet Yellen was more interested in playing a little psychology, sending a message out that the economy was stronger than it really was by scooting the Fed Funds rate up from 0.25% to 0.5%. That would be a HUGE gamble though. Yeah, I'm the same guy who said the Fed's already been using interest rates as a psychological weapon for a while now. But, it would only make sense to use that weapon in the prescribed way when the market is already leaning bullishly. To play that card now, however, when people are nervous may actually spur a quick, sharp selloff. Again though, a Fed-induced selloff in the wake of a rate hike would be a monster-sized buying opportunity, since traders would conclude fairly quickly rising interest rates are actually a sign of strength. As they say, timing is everything. I'll just add that context is everything too. With that being said... It's a Setup, But For What? So what's the call now? Thanks to Tuesday's advance and today's bullish follow-through, the trend has technically turned a little - though not a lot - bullish. That is, the S&P 500 has indeed cleared its critical 20-day moving average line, but it's not yet decisively cleared its peak from one week ago and two weeks ago, around 1993. [It's close to hurdling that ceiling, but it's not convincing yet.] Coincidence? Doubtful. I suspect the market's finding a way to straddle both sides of the fence, remaining ready for either possible outcome tomorrow. Thing is, I think in a lot of ways what could and likely will happen after the news drops merits much more attention. Truth be told (as I see it anyway), the S&P 500 and most of the other indices are setting up a nice fakeout rally that could convincingly pull the masses back in, only to drop them when they least expect it. See the convergence of potential resistance lines around 2040? There's enough room to run between where the index closed today and where it could go tomorrow to make it look like a new rally was underway. But, with all that resistance overhead, I've got a funny feeling a bullish knee-jerk reaction to the Fed's decision on Thursday could push the index to that level, lure a bunch of traders back in, and then WHAM! Down she goes again. The VIX would be finding a floor of its own around 15 at that time, in that scenario. The S&P 500 would still need to break under a recently developed floor around 1958 to really get me worried. But, we have to keep the possibility on the radar. And if the S&P 500 does happen to break below 1958, it's almost inevitable it'll go ahead and test the August low of 1867. I'm kind of hoping it breaks under 1867 early on, however, so we can go ahead and get our capitulation. The least likely scenario is a break above resistance around 2040, or above 2069 on the high side, but we'll save that discussion for if-and-when it happens. For what it's worth, the NASDAQ Composite chart looks pretty darn similar. That is, there's room for a little more upside, but not a lot more upside. A knee-jerk bounce to the Fed's announcement on Thursday could look like the beginning of bullishness on the surface, but given enough time to think about it, a headwind around 4963 could be all the reason traders need to start taking profits on the surge. Once the sellers get going, the trend could take a turn for the worst very quickly. Remember, reversals at the least likely time have been the norm all year long. Honestly I don't even care what happens anymore. I'm just glad the market's finally got enough fuel to break out of this rut, pointed higher or lower. Again though, be wary of any strong initial reaction. It probably won't be built to last. A rally that stalls right at the aforementioned technical ceilings would be particularly troubling. Be sure to check in tomorrow. It's sure to be... interesting. And remember, if you want some specific trading parameters for all the markets intraday moves, the Elite Opportunity is your best resource.