Fed Shocks World

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A few minutes after the close yesterday I tweeted an H&S target in the 1953 SPX area on a sustained break under 1986. With the large gap under the H&S neckline overnight, that’s a target worth remembering today.

The market has now had a few hours to digest yesterday’s revelation that the Fed is still as fearfully timid about even a slight push on the economic brakes as it is recklessly bold at flooring the accelerator at the slightest sign of trouble. Having climbed back onto my chair after falling off it with the shock of the announcement that the Fed is still too scared to raise rates by even 0.25% six years into this ‘recovery’, I’ve been looking at the impact of this momentous news on the pattern structures on the equity indices.

The good news for bears is that the setup is now a lot more obviously bearish. Both of the ascending triangles on SPX and Dow have evolved into decent rising wedges, the rising wedge on RUT has evolved into a bigger rising wedge, and TRAN may have too, although it might just be a bearish overthrow of yesterday’s rising wedge. With no clear pattern on NDX (but a clear rising wedge on NQ), and an unchanged symmetrical triangle on NYA, this is now clearly leaning bearish. Scan 3x 15min SPX INDU TRAN charts:

150918 Scan 3x 15min SPX INDU TRAN

Scan 3x 15min NDX RUT NYA charts:

150918 Scan 3x 15min NDX RUT NYA

These rising wedges are 69% bearish and I’m expecting them to break down, the key question however is when? I have SPX rising wedge support in the 1956 area, and either before or after that trendline breaks, but at or over 1940-5, I’ll be looking for a reversal pattern to form, and forming that pattern may well involve a retest of yesterday’s highs.

It’s worth remembering here that while the early bird may get the worm, it’s the second mouse that gets the cheese, taking advantage of the death of the first mouse to try to eat the cheese in the mousetrap. Is this setup very likely to retest the 1867 low soon? Yes. Is it going to be a seriously painful experience shorting 1960 and then sitting through a retest into the 2020-30 area? Yes. The chances are that we will see a better short entry than this in the next couple of trading days.

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