Wednesday, August 20, 2014

SPX, INDU, COMPQ: It's an FOMC Day; Do You Know Where Your Chairman Is?

The big event today, of course, is the FOMC minutes.  FOMC minutes are always a big event for the market, since the Fed controls liquidity, and liquidity drives risk assets.  I've been a part of the trader subculture for so long now that I almost forget that the average person doesn't really care about the Fed -- and doesn't see them as connected to the stock market in any tangible way.  They think stocks go up or down based on superfluous irrelevancies like the economy and news.

By way of example, the other day, I had a relative point at a picture of someone who bore a vague resemblance to Ben Bernanke and ask me (and I quote):  "Isn't that guy the head of something?"

"You mean Ben Bernanke?"  I asked.  She nodded.  "Well, that's not him -- but he was Fed Chairman," I replied, "Now Janet Yellen runs the show."  That drew a blank stare.  I guess Yellen hasn't been in charge long enough to have made it into the mainstream yet.  We can thus surmise it'll probably be a few more years before the kids are carrying around Janet Yellen lunchboxes, and every pre-teen fan-girl is sporting the stylish Janet Yellen "white bowl filled with sour grapes" haircut.

Anyway, that doesn't have much to do with anything, but it's interesting to consider that while we'll be cued in to everything in the minutes tomorrow, the average person couldn't care less; doesn't recognize any relevancy; and will simply keep sending in their mutual fund contributions every month -- probably regardless of what happens at the Fed.

But for traders, FOMC days are often a wild ride.  Accordingly, I usually put up at least one long-term chart on FOMC days, because it sometimes helps to step back from the ticks, for purposes of maintaining more level emotions in trading.  We'll start off with the long-term SPX daily chart.

The near-term SPX chart has continued developing a somewhat odd-looking wave structure.  Afterwards we'll take a look at INDU and COMPQ for a couple interesting options.

COMPQ made new highs already, and thus validated last month's preferred IT count for that index.  One can conceivably count the rally there as five complete waves, but it's far from traditional to do so.  In blue is the more "expected" way to count this structure.

INDU's chart calls an interesting confluence to attention, and brings a little "fair and balanced" charting for the bears in our audience:

The old key resistance zones on INDU are now the first important support zones.

In conclusion, the market is near a minor inflection point, which seems appropriate for a Fed day.  SPX is only 10 points from the all-time high, and the zone around previous swing highs is often good for at least some degree of resistance, so this is an area in which longs should stay alert.  The near-term charts have continued developing into less-than-predictable waveforms, so trading support and resistance here may be the best option at the moment.  Trade safe. 

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