Pulling Out The Props
The Fed decided to tone down their fearful aggression a bit today. A sixth straight interest rate cut was merely 25-basis points instead of the prayed for 50-basis gift instead. Realists must admit there comes an end to all cycles and we are nearing this one, but it's basic human nature to wish and hope. Artificial props holding up price action for months are being lifted away and we'll see what kind of base remains for support.
Markets reacted to this news by breaking below near-term support, popping back up to test sessions highs, failed to do that and promptly rolled back down to close near the low range instead. While trading without benefit of hindsight during real- time action, the move below recent support had to be respected. Weak action all day and the past several sessions as well remains the prevailing trend.
However, we remain at an apex in the markets and could easily go either way. This reminds me strongly of last month's event where price action slipped a bit into the close of trading and wobbled early the next morning before catching fire in a delayed short- squeeze rally. Could recent history repeat itself? Let's see what near term charts have to offer:
(60/30-Minute Charts: SPX)
The SPX hourly chart (left) shows stochastic weakness continues along with the breaking down below neutral wedge consolidations during final market hours. As noted in Market Pulse well before the FOMC news, chart signals were aligned in classic bearish reversal fashion and day traders who bought puts near 1218 at the time could've caught an easy chunk of profit between there and the session's low soon after.
Thirty-minute chart signals (right) are choppy and attempting to turn bullish as we could endure more volatility Thursday and beyond.
(60/30-Minute Charts: Dow)
Same story in the Dow. Weak hourly charts and strengthening thirty minute signals for the inside time-length. We can see similar wedge consolidations as the OEX (shown below) and would watch each side for a convincing break from there.
(60/30-Minute Charts: QQQ)
The NDX has been dead flat the past few sessions while traders made money in both directions playing the S&Ps. I haven't bought any QQQ option contracts in months myself and that probably won't change very soon. But they remain the most popular contract in existence and I respect that fact greatly, so let's take a peek inside.
Hourly chart price action popped out of a descending channel "bull flag" pattern and promptly began to form a bearish wedge. Widening price action almost always breaks to the downside, and expect the upper line (green) of that descending channel to offer support near the 42.60 area.
Stochastic values look weak for both but nothing I would stake my inheritance on either way.
(60/30-Minute Charts: OEX)
Note this bigger picture of developing wedges in the same fashion as SPX and Dow (not shown on their charts above). This slightly different perspective has been projected forward in time to give us a view of where to watch for breaks. Day traders could play bounces in between these lines in harmony with 10/5 minute chart signals while others might opt to wait for a clear break outside these lines for trade confirmation.
Clear As Mud
That being said, every failed rally from here is just another gift of prime beef on silver platters for us to short. So long as weekly chart signals continue to decline the downside is our trend. I'll happily play the upside for a day or two but the first inkling of blood from there will be savagely attacked by market bears.
We have some relief rallies coming soon and market bulls will be touting how this one's for real, the worst is behind us, we've turned the corner, etc ad-nauseum. That corner will arrive in time but according to all we've heard so far is not here yet.
"The Market" is clueless as always. High volatility proves that. It will continue to oscillate & gyrate on every single piece of economic news that comes down the pike. Actually, that's what the market has been doing for months; using current or lagging economic indicators to justify whether more leading economic stimulus (rate cuts) are needed or not.
With confusion and uncertainty arrives volatility. This remains a short-term trader's market and a dangerous one at that. For all others it becomes more perilous yet. Only experienced traders or complete gamblers should be using money they can easily afford to lose. It's a great time for everyone else to polish up their education but the days of neophytes throwing money at any trade suggestion that moves and expecting more to come back are long gone and at best, somewhere down the road ahead.
Trading 101 Natural Law: The trend is our friend until the end. For now it remains down until proven otherwise and so should our bias remain. Just don't be surprised if a bullish reprieve or two get inserted along the way!
Best Trading Wishes,