Stocks finished the day higher, with the Fed meeting scheduled for tomorrow. The S&P 500 gained around 90%. Technology names bounced back today, while the S&P 500 Equal Weight ETF RSP moved lower by about 50, giving back some of yesterday’s gains.

The RSP remains around resistance at the 61.8% retracement level, which would continue to suggest that the recent rally in the equal-weight sector appears to be a rebound until the ETF breaks out and moves higher.

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Tomorrow’s Fed meeting will significantly affect where rates go and whether the yield curve steepens. If the Fed signals that it will not be cutting interest rates further, at least over the near term, I would think that we would likely see the yield curve steepen further. It is possible to say that the 10/2 curve has formed a flag pattern and that the next big move will be for it to rise further in the form of a bear steepener.

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Of course, much of what happens following tomorrow’s Fed meeting has much more to do with implied volatility levels than that of the decision itself. The VIX 1-Day trades around 13, a reasonably low level 1 day ahead of the Fed. Unless it rises sharply tomorrow in the lead-up to that meeting, the S&P 500 will likely have a muted move post-FOMC and is vulnerable to move lower should Powell come across as more hawkish. Given IV is so low, should the Fed surprise the market and come across as more hawkish, implied volatility could spike.

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Additionally, we saw the VIX also move lower today, allowing the implied correlation to drop. Again, the 1-month implied correlation index is at a low value of just 8, and there is the risk that once we get past earnings later this week, this index could start to rise as implied volatility resets. Historically, low reading in the implied correlation can be associated with short-term market tops.

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