Friday, March 20, 2015

SPX and INDU: Revenge of the Fed

Last update made the mistake of trying to predict the market on a Fed day, and was partially successful in that the very short term did indeed head lower -- but then the Fed announced that they would keep interest rates low until every last American had taken out an 84-month auto loan and invested that money in the Nasdaq Composite Index, at which point the market exploded in a rocket-launch rally.

The present pattern remains unusual -- not in the sense of unusual patterns, really, but more in the sense of the patterns that the Fed-driven bull market of the past six years has previously formed.  We haven't seen too many bottoms form in an up/down/up/down/up overlapping fashion like this.  Most of them have been V-bottoms.

While trying to predict this current wave is more than a little challenging at the moment, here's a go at it anyway.  Don't hold me to this, but my best guess at the near-term for SPX is shown by the blue dashed line below.  It should go without saying that "a breakout" means a sustained breakout.  Keep in mind that if the last rally was an extended fifth, then a complex double-retrace is the norm, and sometimes that comes via an expanded flat b-wave that makes a slight new high before the second leg of the retrace.

If the rally was instead a simple third wave, then we've probably already begun the next wave up.

A bigger picture look at SPX via the two-hour chart, and the current bull/bear counts:

And finally, the world's most simplistic chart of NYA, which simply shows that it's hard not to see that last decline as impulsive.  We can view it as an ABC, but it does require at least some degree of creativity to do so.  A gap fill might be in order here before any further downside.  North of 11,055, and it was indeed an ABC.

In conclusion, there are moments when the market forms high-probability patterns, and one can make high-probability calls about future direction -- and there are moments like now.  This has been one of the more unusual patterns we've seen in recent months, and the intermediate term has grown increasingly difficult to predict.  Most of the time, I would just call this pattern a bullish nest and act accordingly, but for some reason, I'm hesitant to view the current pattern that bullishly, and I wonder if the market isn't setting up for something increasingly complex and unexpected.  Hopefully the next few sessions will provide a bit more info to draw from.  Trade safe.

1 comment:

  1. Good post. Great honesty.... My work shows uncertainty as well. MID / RUT at all time highs ... SPX / DJIA, etc.... just re-testing all time highs..... Parabolic moves in European indices and the USD....

    some times there is no high probability moves and right now feels like one of those times.