All Coiled Up

By -

I'd like to see the S&P get to 1120 and the Dow above 10,000. No, I'm serious. I think it would do all of us a lot of good. The snare drumming buzzing in the background and the sense of anticipation is all just a bit too much. And I think we've got a reasonable chance of getting there.

Let's start off with a look at the minute bar graph of the December 2009 /ES contract.


We see a number of things in the graph above:

  1. The trend is up. Duh;
  2. The really explosive rise lasted one month. That's where all the really easy money was made;
  3. There have been three broad phases to this rally – explosive (1 month), medium (2 months), and grinding (2 months and counting);

Now let's hone in on what should have the bulls genuinely excited; the tightly-wound spring compressed between 1050 and 1070. If whatever the FOMC utters on Wednesday is agreeable to the market, this thing will bust out above 1070, and it will not look back.


It would actually make a fair bit of technical sense for the S&P to rally to 1120. As you can see in the graph below, the tinted area represents the 4.6% push higher it would take to get to this area, and it would mean the S&P (1) has reached its 50% retracement (2) is on the underside of a major fan line (the former fan line acted as a springboard for the failed H&S pattern, prompting the market to zoom higher starting early in July).


Well, what if the FOMC announcement comes out, and the market falls instead? (And by "falls", I don't mean a crash – – at this point, any sustained drop below even 1060 would be a pretty bad thing for the bulls, and below 1050 would be an Epic Fail).

In that instance, I think the rally will have exhausted itself, and the only fumes left to drive it will be the machinations of the investment banks who are gunning for their year-end (which completes in 6 trading days) bonuses.