Technically, the markets remain below key levels of resistance. If there are closes above S&P 500 1242.62 or Nasdaq 2186.83, I would expect them to usher in a short-term upleg.
On a sentiment basis, even if the Fed does not pause at its meeting on Tuesday, Sept. 20, I think the markets are going pick though the post-meeting statement with a fine-tooth comb in an effort to seek-out, "spin," the post meeting announcement in a bullish fashion. I think the markets are going to try to focus on only those phrases that can be interpreted to mean a pause in the rate tightening can come. I think there is some potential for the Fed to surprise with a pause at Tuesday's meeting; if that happens, intraday trading could be volatile as some big players might become concerned that the Fed is very concerned about the longer-term impact of Katrina. I think the markets ultimately could see a short-term leg higher on the news.
The yellow flag of caution for the Nasdaq (produced last week), has not been extinguished by the price action of Thursday or Friday, the Nasdaq has had a close under 2146.00 and the potential (technically) for lower prices remains in place. but if there is a close above the Nasdaq 2186.83 level, then this cautionary condition would have to be declared wrong; a failure.
In terms of an FOMC meeting day, a common pattern for prices is little movement up or down until closer to the announcement. There should be a lot of players making headline bets and when the announcement is made the potential for a short move in one direction, a reversal and a another reversal for the direction of prices would be in place.
There is another wild-card for Tuesday and the rest of the week: Tropical Storm Rita.
On Tuesday, at 8:30 am ET, reports on housing starts and building permits for August will be reported.
The Nasdaq has intraday resistance 2158-2163; resistance is formidable at 2165-2186.83, and gets gets thick at 2177-2186.83. Resistances are stacked, the next layer of chart significance is 2201-2249. Resistance thickens at 2211-2233.
S&P 500 resistance is formidable at 1229-1242.62. A combination of several intraday plateaus creates a focus of resistance at 1238-1242.62. The next focus of resistance above 1245 is 1249.23-1267.
Nasdaq intraday support is 2147.31-2139 (intraday charts). Next support (under 2139) is 2131-2112.25. The Nasdaq's major support is 2106-2039, and it is a critical support, that, if broken would open the downside for sub-2000 prints. Inside the 2106-2039 support layer, there is a focus of support at 2106-2076 and this is still a likely spot for the markets to make a stand (if tested).
Chart pattern studies I have done suggest that if the Nasdaq has a close below the 2146 level, additional downside is likely, but it is the reaction to the FOMC's announcement that will dictate price action.
The S&P 500 has immediate intraday support at 1234-1224.85. Thursday's price action opened the intraday risk for a test of the 1222-1215 area, but sideways ahead of the FOMC meeting should prevent prices from undercutting 1224.85. Next support is 1206-1165 with a focus of support at 1206-1183. This is a very strong layer of support and if it were tested, I would still expect it to hold on the test. If the index experiences a close under 1218.02, a retest of 1206-1195 area would be expected.