Wednesday, March 4, 2020

SPX and INDU: Fed Shows Up

Yesterday, the Federal Reserve announced an emergency half-point rate cut, and the market went crazy and spiked higher.  For a minute (literally).  Then everyone suddenly remembered that rate cuts don't cure viruses, and the spike reversed with a vengeance.  We really are in uncharted waters here, generationally.

While I've heard some media personalities insisting that "we shouldn't be so concerned," because Coronavirus "hasn't killed as many people as the flu," the operative word missing from that phrase is YET.  We can't compare the final numbers at the end of a virus' run (flu) with developing numbers at the BEGINNING of an outbreak (Coronavirus) and expect those numbers to have any relevance.  That is a false and misleading comparison; apples and oranges, as they say.  It would be like comparing the savings accounts of a 19 year old who has $500 with a 65 year old who has $1000 and saying, "Well, obviously the 65 year old is better at saving money!"  In reality, the reverse appears to be true.  The 19 year old has just gotten started and is pacing to develop a much larger account over the same amount of time.

Anyway, enough about the potential global pandemic.  Just keep hearing the fallacy of comparing the flu's final numbers with Coronavirus' developing numbers as if it means anything, and illogical comparisons bother me, because they lead to incorrect conclusions.

But on to the charts!

First up, if INDU is working on a fourth wave, there are enough waves for it to potentially be complete, though I would like to see a break of yesterday's low to help confirm that.  So far, it appears to only be three waves down to yesterday's low, so wave 4 (if that's what this is, and we can't be sure), could still run farther if it wants.  Bears should probably be at least a bit cautious much north of yesterday's spike high.

Bigger picture, given that the Central Banks are beginning to show up, I've at least added the bull count as an option (currently alternate):

Finally, recall this chart and that the market hasn't done anything unexpected (yet):

In conclusion, yesterday's high is an inflection zone for wave 4, or wave A of 4.  Yesterday's low is an inflection for an ABC down from that high (so bears need to claim yesterday's low).  We'll see how the market reacts from here.  Trade safe.

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