Schrodinger’s Market

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We have two days of FOMC this week, and that would generally be bullish, but this FOMC has been heavily trailed as including an extension of the modest taper from last month, and may perhaps include a schedule for the full winding down of QE3 this year. This week’s FOMC may therefore be bearish, and possibly very bearish.

Generally at a low reversal on SPX of any size we see either a double bottom or IHS form. This week however an ascending triangle has formed from the low which I posted on twitter yesterday afternoon. I am not fond of triangles but these do break up 70% of the time and the upside target would be 1813, which would currently be both an ideal right shoulder high for the H&S that may be forming here and also a retest of the 50 DMA. If it breaks down hard at the open, which at the moment looks very possible, then the target is at a retest of the current lows. SPX 15min chart:

140129 SPX 15min Ascending Triangle

On the daily chart the close yesterday was on the daily lower bollinger band, and on a break much above the next overhead resistance level will be the 50 DMA at 1813. If instead we see another day trading under the daily lower bollinger band then I would expect that to close today in the 1782-5 area: SPX daily chart:

140129 SPX Daily Patterns BBs MAs

FOMC could also have a big impact on TNX as the end of QE1 and QE2 saw very large rallies on bonds. We may therefore see a significant break either way, depending on what is announced. At the moment TNX is forming a falling wedge on the way to the H&S target in the 26 area. If we see a hard break down I do have a larger target in the 19 area that is worth bearing in mind. TNX 60min chart:

140129 TNX 60min HS and Falling Wedge

I warned of the bearish setup on AAPL on 13th January and we saw that play out in a single gap down yesterday morning. This has broken the uptrend from the lows last year and I’m not seeing any obvious sign that it might reverse back up yet. I’ll be keeping an eye on this one. AAPL 60min chart:

140129 AAPL 60min Rising Wedge Broken Down

ES is at 1772 as I write and a big gap down at the open looks likely. That being the case I’d normally expect to see a test of the lows in trading hours today and if they hold we will then have a double-bottom setup targeting the 1813 area, which would be the obvious next target area.