Wednesday, March 19, 2014

Recent Market History Gives Warning for Today's FOMC Day

Today is FOMC day, which is typically a great day for traders who enjoy volatile whipsaw markets and feelings of righteous indignation.  Recent market history suggests it may also be something more.

In Monday's update, I discussed that I felt the market had reached an inflection zone, and it had the potential to put together a decent rally.  The S&P 500 (SPX) has since rallied to within 10 points of the all-time-high, which is an important resistance level.  And now things get interesting again, especially since this week we have March options expiration (OpEx), in conjunction with the FOMC meeting.  During 2013, there were three FOMC meetings that fell during OpEx weeks, and all three led to major turns (plus or minus only one trading day).  I've highlighted this on the long-term SPX chart which follows.

The long-term SPX chart shows that there are two potential intermediate counts in play, and a clear victor still hasn't emerged yet.  If bulls can sustain trade above the up-sloping red trend line (on the chart below), then the market will likely take aim at the 2000's.  For the moment, though, the all-time highs and said red trend line must be respected as resistance.

It's also interesting to note the prior decline found support after a perfect test of the dashed red median line, and is now testing the blue trend line.

On the 30-minute SPX chart, I've outlined the bull/bear key overlaps, and the bearish pivot zone.  I've also revisited the near-terms wave structure slightly in order to explore how the decline could be counted impulsively -- this is largely an academic exercise with this type of ambiguous structure, as opposed to being predictive (as it sometimes is).  The rally off the low is three waves so far.

Finally, let's update the USDJPY Forex chart.  I'm still inclined to lean near-term bullish on this pair until my target of 102.600 +/- is reached on the upside (at which point I would become neutral leaning bearish), or until dollar/yen sustains trade beneath 100.750 (at which point I would become bearish).

The first meaningful level is 101.200:  A quick whipsaw would be okay, but sustained trade south of 101.200 would suggest a retest (or break) of 100.750 (shown as the gray alternate count) -- and the same rules then apply to the 100.750 level, but on a larger scale.  As with many charts, the first key level (101.200) provides warning that a trip to the next level is likely.

In conclusion, I was bearish early in March and remained so until Friday's close, at which point I shifted to near-term bullish.  I would currently label myself as neutral for the following reasons:

1.  The intermediate wave structure has a bearish bias until the noted levels are reclaimed; this conflicts with the intermediate trend, which is still bullish.
2.  Price is clearly in a bullish near-term trend for the moment.
3.  Both trends face resistance at the noted key levels -- meaning those price zones potentially have the power to stall or reverse the trend.  If the market instead sustains trade above those key levels, then odds are good the trend will accelerate.

It will be interesting to see if the FOMC meeting today, in conjunction with options expiration week, generates a major reversal as it has on the past three occasions.  Trade safe.

Follow me on Twitter while I try to figure out exactly how to make practical use of Twitter:

Reprinted by permission; Copyright 2014 Minyanville Media, Inc.

1 comment:

  1. Yes while it's true that the past 5 out of 6 FOMC meetings have resulted in slight market declines,
    there's a 50 % chance that the markets will move higher. Or maybe it's just my bias (that I'm a glass is at the 50% level at this moment, kind of guy).