Wednesday, February 10, 2016

SPX and RUT: Yellen Speaks

Today, of course, marks the premier of the long-awaited two-part animated series: Ask Janet Yellen!  This show is produced under the pretense of creating some sense of accountability from the Federal Reserve to the American People.  While we, the American People, don't get to ask Chairperson Yellen any questions directly, the officials we've unwillingly elected to Congress will ask Janet Yellen questions "on our behalf."  Then our elected officials will alternately nod or frown (sometimes both), in order to pretend they understood the answer they received.

If you thought the Super Bowl was fun, you're most definitely going to want to set aside most of Wednesday and Thursday to watch this exciting drama unfold.  Just read what the critics are saying about Ask Janet Yellen!

"Some of the best entertainment available," says Larry King, "is on other channels."

"Riveting!" exclaims the New York Times "such as one finds on the Home Improvement Channel, is, frankly, more exciting than watching Yellen's Congressional testimony."

Moving on to the charts, the short-term patterns remain up for grabs, but the market does seem to be indicating that the odds for a meaningful low at 1812 SPX have indeed diminished.  In fact, RUT has already broken its equivalent low.  The current decline in RUT is three-waves, so it's either the b-wave of an expanded flat (black), or an incomplete impulsive decline (blue -- but could stretch lower than shown):

A simple view of SPX reveals broken long-term support, and a rejected back-test of that support (i.e.-- support became resistance).  If the expanded flat shown on RUT (above) played out, then we could get a second test of the broken blue channel, probably a bit higher than the first test -- but that second test would also ultimately be expected to fail and head lower:

The near-term options for SPX are similar to RUT, though are not shown with as much detail.  If SPX sustains a breakdown at 1812, then 1770 +/- remains the first target, while 1700 +/- would be the second target (this second target is preliminary -- to be adjusted based on the near-term wave pattern after any breakdown).

In conclusion, we can probably anticipate some wild gyration from the market in tune with Yellen's testimony.  From a technical perspective, if the recent decline is a B-wave, then that would lead to a near-term rally back up, north of 1947 SPX -- but that would ultimately be expected to be a sucker rally and reverse back to new lows.  The first hurdle to that path remains the 1880-90 zone.  On the bear side, an immediate and sustained breakdown at 1812 could lead the market significantly lower.  Trade safe.

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