Wednesday, July 30, 2014

SPX, INDU, COMPQ, NYA, HYG:TLT -- Market Teetering on FOMC Day

First off, I want to thank everyone who gave a warm response to the issue mentioned in the last update.  Your support is truly appreciated!  (And you have yourselves to thank for the very existence of today's update; I stay true to my word.)

Today is FOMC day, and pundits almost unanimously expect the Fed will make a series of vague and inconclusive statements regarding past, present, and future monetary policy.  Afterwards, analysts will argue vehemently about what exactly Fedchairmanwomanperson Yellen meant when she said (things such as): "Soon, but not too soon!  Also not too late.  And certainly no later than too soon.  Whichever is greater!"

The market will gyrate wildly as traders try to determine if they should go short, cover shorts, go long, sell longs, or quit trading altogether -- all based on whether Yellen seems to be dovish, hawkish, or hummingbird-ish (who decided the Fed's stance should equate to birds?).

Yellen's overall demeanor will also be a factor.  Remember that one FOMC meeting a few years back, when Ben Bernanke suddenly got agitated and pounded his fist on the table, and the S&P 500 (SPX) immediately rallied 30 points?  Later, reporters learned this whole scene was because Bernanke was trying to smash a bug, and the market gave back all 30 points in less than 10 minutes.  If you don't remember that meeting, it's probably because I made it up -- but, nonetheless, those types of crazy moves are fairly common on FOMC day, and we should prepare for them.  One such preparation that's recommended by veteran traders is to either keep your positions small, or to have your local Suicide Hotline set to speed dial.

Moving to the charts, Monday saw the anticipated new low, and that new low thus seems to confirm an impulsive decline.  Assuming last week's highs hold, then things appear reasonably straightforward.  If that high fails, then all bearish bets are off and the preferred wave count is reset.

As I've looked at the charts tonight, I can't help but think bulls are going to do their best to make things interesting.  The rally from Monday's low counts best as an impulse wave, so a retest of the highs may be in store.  Keep in mind that the first directional move out of the FOMC debacle is usually a head-fake -- so that may be just what the doctor ordered for a c-wave that falls short of the all-time-high, but gets everyone looking up.  We'll start with the 2-minute SPX chart:

 Next the 10-minute chart:


COMPQ... if COMPQ rallies directly, there may not be enough room for an ABC and things might get interesting.  Of course, there's no law that says COMPQ has to be in the exact same wave count as SPX or INDU -- in fact, it frequently is not.


Finally, the HYG:TLT ratio chart is on a disconnect from the equities market:

In conclusion, nothing unexpected has happened yet, so the bears have to continue to be given the benefit of the doubt.  In the meantime, though, a bit more rally would not be out of order.  One count that's not shown or discussed is for a smaller expanded flat that peaks between 81-85, and I mention that because it's not safe to assume that 85 will be broken if 81 is claimed by the bulls.

A lot will be decided in the next couple sessions.  I can't promise a super bullish resolution on a breakout, but a breakdown of Monday's low would have very bearish implications.  If the ABC rally is unfolding, bears may have to wait a couple sessions for their day in the sun.  It's a really tough call here, because many of my other indicators are confirming yesterday's drop as "real" (as opposed to corrective), so there's no easy answer regarding whether the ABC will unfold, or whether wave (2) is already entirely complete.

But the short version of the "bottom line" is that I remain bearish unless the all-time-high is claimed.

Keep in mind that the entire month of July has essentially been one big chop zone, so moves inside that zone will be full of sound and fury, and range-racing now would be normal.  Also keep in mind that, at this point, patterns that form inside the zone on smaller time frames will often be fakes, so approach near-term patterns with caution.  Trade safe.

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