EB Daily Market Report - Brief Update - Tuesday, July 29, 2025

We're 24 hours away from another Fed decision. If it's anything like the last few, expect to see a potential disappointment. The good news is that, despite the Fed's reluctance to cut the fed funds rate, the stock market has been able to power forward and look ahead at a better, lower rate market environment. Below is a chart of the S&P 500 with a solid black directional line pointing to the dates of prior FOMC policy statement decisions:

The January and March decisions were followed by selling during periods of questionable market conditions and a cyclical bear market. The last two meetings, however, while perhaps disappointing to many bulls, including myself, were followed up by continuing improvement in our major indices. We've responded and set new all-time highs and it's primarily due to the prospects of better economic conditions ahead during what should be a lower interest rate environment.

The biggest risk in the market, in my view, is that the prospects of a lower interest rate environment never materialize - for whatever reason. It could be signs of higher inflation or simply the Fed's refusal to cut based on a resilient economy.

Personally, I'm continuing to watch key support on small caps (IWM) and biotech (XBI). Tests and near-tests of the rising 20-day EMA have been successful during recent action and I want to make sure that continues in order to remain active in leveraged products like TNA and LABU, respectively.

Here are the IWM and XBI charts:

The best time to trade the leveraged TNA and LABU products is when key moving average and price support of the underlying securities (ie, IWM and XBI) are being tested. The reason is simple. I can keep my downside risks fairly low and manageable based upon entries at or near these support levels. The constant back-and-forth action that we've seen in the IWM and XBI also underscores the reason why profit taking in leveraged products from time to time makes a lot of sense.

From a sector perspective, it's a fairly dull day. Defensive groups are showing strength, though technology (XLK, +0.26%) is showing strength as well. But it's another bifurcated day where 5 sectors are up and 6 are down. Industrials (XLI, -1.02%) are lagging, but it's likely due to a bit of profit taking as the XLI has the 2nd best SCTR score (StockCharts Technical Rank) among all 11 sectors, trailing only the XLK.

Now we wait for the Fed.

Happy trading!

Tom